Notice of 2019 Annual Meeting
And Proxy Statement
2018 Annual Report on Form 10-K
4001 204th Street SW
Lynnwood, Washington 98036
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On June 5, 2019
Dear Shareholder:
You are cordially invited to attend the 2019 annual meeting of shareholders of Zumiez Inc., a Washington
corporation. Zumiez Inc. and its wholly-owned subsidiaries is also referred to as “Zumiez,” “we,” “our,” “us,” “its”
and the “Company.” The meeting will be held on Wednesday, June 5, 2019 at 8:30 a.m. (Pacific Time) at our
headquarters located at 4001 204th Street SW, Lynnwood, Washington 98036 for the following purposes:
1. To elect three directors to hold office until our 2022 annual meeting of shareholders;
2. To consider and act upon a proposal to ratify the selection of Moss Adams LLP as our independent
registered public accounting firm for the fiscal year ending February 1, 2020 (“fiscal 2019”); and
3. To conduct any other business properly brought before the meeting.
These items of business are more fully described in the Proxy Statement accompanying this Notice.
Our board of directors recommends a vote “For” Items 1 and 2. The record date for the annual meeting is
March 27, 2019. Only shareholders of record at the close of business on that date may vote at the meeting or any
adjournment or postponement thereof.
Under the Securities and Exchange Commission (“SEC”) rules that allow companies to furnish proxy
materials to shareholders over the Internet, we have elected to deliver our proxy materials to the majority of our
shareholders over the Internet. The delivery process will allow us to provide shareholders with the information they
need, while at the same time conserving natural resources and lowering the cost of delivery. On or about April 26,
2019, we mailed to our shareholders a Notice of Internet Availability of Proxy Materials (the “Notice”) containing
instructions on how to access our fiscal year ending February 2, 2019 (“fiscal 2018”) Proxy Statement and 2018
Annual Report to Shareholders. The Notice also provides instructions on how to vote online or by telephone and
includes instructions on how to receive a paper copy of the proxy materials by mail.
YOUR VOTE IS IMPORTANT!
Whether or not you attend the annual meeting, it is important that your shares be represented and voted at the
meeting. Therefore, we urge you to promptly vote online, by telephone, or if you received a paper copy of the voting
card, submit your proxy by signing, dating and returning the accompanying proxy card in the enclosed prepaid
return envelope. If you decide to attend the annual meeting and you are a shareholder of record, you will be able to
vote in person even if you have previously submitted your proxy.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 5, 2019: The Notice of Annual Meeting of
Shareholders, Proxy Statement and the Annual Report to Shareholders are available on the internet at
http://ir.zumiez.com./phoenix.zhtml?c=188692&p=irol-reports.
By Order of the Board of Directors
Chris K. Visser
Chief Legal Officer and Secretary
Lynnwood, Washington
April 26, 2019
4001 204th Street SW
Lynnwood, Washington 98036
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 5, 2019
QUESTIONS AND ANSWERS
Why am I receiving these proxy materials?
We are making available to you this proxy statement and the accompanying proxy card because the board of
directors of Zumiez Inc. (“Zumiez,” “we,” “us,” “its” and the “Company”) is soliciting your proxy to vote at our
2019 annual meeting of shareholders. You are invited to attend the annual meeting to vote on the proposals
described in this proxy statement. Should you choose to attend, you must be ready to present proof of your
ownership of Zumiez stock as of the record date, March 27, 2019, to attend the meeting. However, you do not need
to attend the meeting to vote your shares. For more information on voting, see information below under the section
heading “How do I vote?”
We intend to mail or otherwise make available this proxy statement and the accompanying proxy card on or
about April 26, 2019 to all shareholders of record entitled to vote at the annual meeting.
Who can vote at the annual meeting?
Only shareholders of record at the close of business on March 27, 2019, the record date for the annual
meeting, will be entitled to vote at the annual meeting. At the close of business on the record date, there were
25,720,046 shares of common stock outstanding and entitled to vote.
Shareholder of Record: Shares Registered in Your Name
If, at the close of business on the record date, your shares were registered directly in your name with our
transfer agent, American Stock Transfer & Trust Company, then you are a shareholder of record. As a shareholder
of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting,
we urge you vote your proxy to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Agent
If, at the close of business on the record date, your shares were not held in your name, but rather in an account
at a brokerage firm, bank or other agent, then you are the beneficial owner of shares held in “street name” and these
proxy materials are being forwarded to you by your broker, bank or other agent. The broker, bank or other agent
holding your account is considered to be the shareholder of record for purposes of voting at the annual meeting. As a
beneficial owner, you have the right to direct your broker, bank or other agent on how to vote the shares in your
account. You are also invited to attend the annual meeting. Should you choose to attend, you must be ready to
present proof of your ownership of Zumiez stock as of the record date, March 27, 2019, in order to attend the
meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the
meeting unless you request and obtain a valid legal proxy issued in your name from your broker, bank or other
agent. For more information about a legal proxy, see the information, below, under the section heading “How do I
vote? – Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Agent.”
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What am I voting on?
You are being asked to vote on the following matters:
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Election of three directors (Proposal 1); and
To consider and act upon a proposal to ratify the selection of Moss Adams LLP as our independent
registered public accounting firm for fiscal 2019 (Proposal 2).
When you vote your proxy, you appoint Chris K. Visser and Richard M. Brooks as your representatives at the
meeting. When we refer to the “named proxies,” we are referring to Mr. Visser and Mr. Brooks. This way, your
shares will be voted even if you cannot attend the meeting.
How do I vote?
For Proposals 1 and 2, you may vote “For,” “Against” or “Abstain” from voting (for the election of directors,
you may do this for any director nominee that you specify). The procedures for voting are as follows:
Shareholder of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at the annual meeting, via the internet, by telephone
or by proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is
counted. You may still attend the meeting and vote in person if you have already voted by proxy.
•
•
•
•
To vote in person, come to the annual meeting and we will give you a ballot when you arrive. Please be
prepared to present proof of your ownership of Zumiez stock as of March 27, 2019.
To vote via the internet—You may vote online at www.proxyvote.com. Voting on the internet has the
same effect as voting by mail or by telephone. If you vote via the internet, do not return your proxy card
and do not vote by telephone. Internet voting will be available until 11:59 p.m. Eastern time, June 4,
2019.
To vote by telephone—You may vote by telephone by calling 1-800-690-6903 and following the
automated voicemail instructions. Voting by telephone has the same effect as voting by mail or via the
internet. If you vote by telephone, do not return your proxy card and do not vote via the internet.
Telephone voting will be available until 11:59 p.m. Eastern time, June 4, 2019.
To vote using the proxy card, simply complete, sign and date the proxy card and return it promptly in the
envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote
your shares as you direct.
Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Agent
If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should
have received a proxy or voting instruction form with these proxy materials from that organization rather than from
us. You can vote by using the proxy or voting information form provided by your broker, bank or other agent or, if
made available, vote by telephone or via the internet. To vote in person at the annual meeting, you must obtain a
legal proxy from your broker, bank or other agent. Under a legal proxy, the bank, broker, or other agent confers all
of its rights as a record holder (which may in turn have been passed on to it by the ultimate record holder) to grant
proxies or to vote at the meeting. Follow the instructions from your broker, bank or other agent included with these
proxy materials, or contact your broker, bank or other agent to request a legal proxy. Please allow sufficient time to
receive a legal proxy through the mail after your broker, bank or other agent receives your request.
How many votes do I have?
On each matter to be voted upon, you have one vote for each share of Zumiez common stock you own as of
the close of business on March 27, 2019, the record date for the annual meeting.
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What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting selections, your shares will be voted
in the following manner:
•
•
“For” the election of all nominees for director (Proposal 1); and
“For” the ratification of the selection of Moss Adams LLP as our independent registered public
accounting firm for fiscal 2019 (Proposal 2);
If any other matter is properly presented at the meeting, one of the named proxies on your proxy card as your
proxy will vote your shares using his discretion.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to mailed proxy materials, our directors and
employees may also solicit proxies in person, by telephone or by other means of communication. Directors and
employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage
firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners. We have retained
Advantage Proxy to act as a proxy solicitor in conjunction with the annual meeting. We have agreed to pay
Advantage Proxy approximately $4,750 for proxy solicitation services.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name and/or are
registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares
are voted. Alternatively, if you vote by telephone or via the internet, you will need to vote once for each proxy card
and voting instruction card you receive.
Can I change my vote after voting my proxy?
Yes. You can revoke your proxy at any time before the applicable vote at the meeting. If you are the record
holder of your shares, you may revoke your proxy in any one of three ways:
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•
You may submit another properly completed proxy with a later date.
You may send a written notice that you are revoking your proxy to our Chief Legal Officer and Secretary,
Chris K. Visser, at 4001 204th Street SW, Lynnwood, Washington 98036.
You may attend the annual meeting and vote in person (if you hold your shares beneficially through a
broker, bank or other agent you must bring a legal proxy from the record holder in order to vote at the
meeting).
If your shares are held by your broker, bank or other agent, you should follow the instructions provided by
them.
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A quorum will be present if at least a majority
of the outstanding shares as of the close of business on the record date are represented by shareholders present at the
meeting or by proxy.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your
behalf by your broker, bank or other agent) or if you vote in person at the meeting. Generally, abstentions and broker
non-votes (discussed below in “How are votes counted?”) will be counted towards the quorum requirement. If there
is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date. Your vote is
extremely important, so please vote.
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How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately count “For,”
“Against” and “Abstain” and broker non-votes (described below, if applicable) for Proposals 1 and 2. Abstentions
and broker non-votes will not be counted as votes cast for any proposal.
If your shares are held by your broker, bank or other agent as your nominee (that is, in “street name”), you
will need to obtain a voting instruction form from the institution that holds your shares and follow the instructions
included on that form regarding how to instruct your broker, bank or other agent to vote your shares. If you do not
give instructions to your broker, bank or other agent, they can vote your shares with respect to discretionary items,
but not with respect to non-discretionary items. Under the rules of the New York Stock Exchange, the election of
directors (Proposal 1) is considered non-discretionary items while the ratification of the selection of Moss Adams
LLP as our independent registered public accounting firm (Proposal 2) is considered a discretionary item.
Accordingly, if your broker holds your shares in its name, the broker is not permitted to vote your shares on
Proposal 1 but is permitted to vote your shares on Proposal 2 even if it does not receive voting instructions from you
because Proposal 2 is considered discretionary. When a broker votes a client’s shares on some but not all of the
proposals at the annual meeting, the missing votes are referred to as broker non-votes. Broker non-votes will be
included in determining the presence of a quorum at the annual meeting but are not considered present or a vote cast
for purposes of voting on the non-discretionary items. Please vote your proxy so your vote can be counted.
How many votes are needed to approve each proposal?
Under Washington corporation law, our Articles of Incorporation and our bylaws, if a quorum exists, the
approval of any corporate action taken at a shareholder meeting is based on votes cast. “Votes cast” means votes
actually cast “For” or “Against” Proposals 1 and 2, whether by proxy or in person. Abstentions and broker non-votes
(discussed previously) are not considered “votes cast.” Each outstanding share entitled to vote with respect to the
subject matter of an issue submitted to a meeting of the shareholders shall be entitled to one vote per share.
Proposal 1. As described in more detail below under “Election of Directors,” we have adopted majority
voting procedures for the election of directors in uncontested elections. As this is an uncontested election, the
director nominees will be elected if the votes cast “For” a nominee’s election exceed the votes cast “Against” the
director nominee. There is no cumulative voting for the election of directors.
Proposal 2. For the ratification of the selection of our independent registered public accounting firm for fiscal
2019, if the number of “For” votes exceeds the number of “Against” votes, then Proposal 2 will be ratified.
If you abstain from voting on any of the proposals, or if a broker or bank indicates it does not have
discretionary authority to vote on any particular proposal, the shares will be counted for the purpose of determining
if a quorum is present, but will not be included in the vote totals as a vote cast with respect to the proposal in
question. Furthermore, any abstention or broker non-vote (a broker non-vote is explained previously in “How are
votes counted”) will have no effect on the proposals to be considered at the meeting since these actions do not
represent votes cast by shareholders.
How can I find out the results of the voting at the annual meeting?
Preliminary voting results will be announced at the annual meeting. Final voting results will be published on
Form 8-K with the Securities and Exchange Commission (“SEC”) within four business days after the annual
meeting.
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Director Qualifications
The board of directors believes that it is necessary for each of the Company’s directors to possess many
qualities and skills and the composition of our board of directors has been designed to allow for expertise in
differing skill sets. The governance and nominating committee is responsible for assisting the board in matters of
board organization and composition and in establishing criteria for board membership. A detailed discussion of
these criteria and how they are utilized is set forth below under “Membership Criteria for Board Members.” Also,
the procedures for nominating directors are set forth below under “Director Nomination Procedures.”
Information as of the date of this proxy statement about each nominee for election this year and each other
current director is included below under “Election of Directors.” The information presented includes information
each director has given us about his or her age, all positions he or she holds, his or her principal occupation and
business experience for the past five years and the names of other publicly-held companies of which he or she
currently serves as a director or has served as a director during the past five years. In addition, information is also
presented below regarding each nominee’s and current director’s specific experience, qualifications, attributes and
skills that led our board to the conclusion that he or she should serve as a director. We also believe that all of our
director nominees and current directors have a reputation for integrity, honesty and adherence to high ethical
standards.
Information about the number of shares of common stock beneficially owned by each director appears under
the heading “Security Ownership of Certain Beneficial Owners and Management.” There are no family relationships
among any of the directors and executive officers of the Company.
Board Leadership
We separate the roles of Chief Executive Officer (“CEO”) and Chairman of the Board (“Chairman”) in
recognition of the differences between the two roles. Our CEO, Richard M. Brooks, is responsible for setting the
strategic direction for the Company and the day to day leadership and performance of the Company, while our
Chairman, Thomas D. Campion, provides guidance to the CEO and sets the agenda for board meetings and presides
over meetings of the full board of directors. Because Mr. Campion is an employee of the Company and is therefore
not “independent,” our board has appointed Sarah G. McCoy, as the Company’s lead independent director. The lead
independent director has responsibility to:
•
•
•
•
•
•
•
call, lead and preside over meetings of the independent directors, which meet in private executive
sessions at each board meeting;
call special meetings of the board of directors on an as-needed basis;
set the agenda for executive sessions of meetings of the independent directors;
facilitate discussions among the independent directors on key risks and issues and concerns outside of
board meetings;
brief the Chairman and CEO on issues that arise in executive session meetings;
serve as a non-exclusive conduit to the Chairman and CEO of views, concerns and issues of the
independent directors; and
collaborate with the Chairman and CEO on setting the agenda for board meetings.
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Membership Criteria for Board Members
The governance and nominating committee of the board is responsible for establishing criteria for board
membership. This criteria includes, but is not limited to, personal and professional ethics, training, commitment to
fulfill the duties of the board of directors, commitment to understanding the Company’s business, commitment to
engage in activities in the best interest of the Company, independence, industry knowledge and contacts, financial
and accounting expertise, leadership qualities, public company board of director and committee experience and
other relevant experience and qualifications. These criteria are referenced in the Company’s Corporate Governance
Guidelines and in Exhibit A to the governance and nominating committee’s charter, both available at
http://ir.zumiez.com under the “Governance” section. The board also has the ability to review and add other criteria,
from time to time, that it deems relevant. Specific weights are not assigned to particular criteria and no particular
criterion is necessarily applicable to all prospective nominees.
The criteria referenced above are used as guidelines to help evaluate the experience, qualifications, skills and
diversity of current and potential board members. With respect to diversity, we broadly construe it to mean diversity
of race, gender, age, geographic orientation and ethnicity, as well as diversity of opinions, perspectives, and
professional and personal experiences. Nominees are not discriminated against on the basis of race, religion,
national origin, sexual orientation, disability or any other basis proscribed by law. The board believes that the
backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix
of experience, knowledge and abilities that will allow the board to fulfill its responsibilities.
Risk Oversight
The board takes an active role, as a whole and also at the committee level, in helping the Company evaluate
and plan for the material risks it faces, including operational, financial, legal, regulatory, strategic and reputational
risks. The Company utilizes a risk management and oversight framework built upon eight key practices identified by
the National Association of Corporate Directors (the “NACD”) for effective board oversight of risk, as follows:
•`
clarify the roles of the Board, Committees, and Management,
•
•
•
•
•
•
•
understand the Company’s risk profile,
define the Company’s risk appetite,
integrate strategy, risk, and performance discussions,
ensure transparent and dynamic risk reporting,
reinforce clear accountability for risk,
verify that the mitigation reduces risk exposure, and
assess risk culture.
The Company also believes that the ownership and the management of risk is best thought about through the
Company’s cultural lens of empowerment and the related corollary principle of accountability. In this way, a person
who is primarily responsible for the execution of a task or function is also the person who is primarily responsible or
accountable for all related aspects of that task or function, including the management of risk associated thereof. In
other words, management of risk is integrated into the Company’s business decision making process. In addition,
during the December board of directors meeting, the board and management discuss, evaluate and assess risk in
connection with the Company’s five-year planning process. In connection with this review, the key strategic and
operational risks of the Company are reviewed and discussed. These key strategic and operational risks are grouped
by (1) the type of risk (external or internal in nature) and (2) the Company’s ability to control and respond to the
risk. The relative importance or priority of the risks are discussed as well as whether any corresponding risk
mitigation measures have been identified and implemented.
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For topics inherent to a particular board committee or otherwise set forth in a committee charter, that
particular committee has primary responsibility for the topic with the full board having secondary accountability.
For example, the audit committee discusses with management the Company’s major financial risk exposures and the
steps management has taken to monitor and control such exposures, including the Company’s risk assessment and
risk management policies and its oversight of cybersecurity risk. The compensation committee is responsible for
overseeing the management of risks relating to the Company’s executive compensation plans and arrangements. The
governance and nominating committee manages risks associated with corporate governance, including risks
associated with the independence of the board and reviews risks associated with potential conflicts of interest
affecting directors and executive officers of the Company. While each committee is responsible for evaluating
certain risks and overseeing the management of such risks, the entire board is regularly informed through committee
reports about such risks. Furthermore, at least annually, the board conducts an independent session where they
outline the risks that they believe exist for the Company and the broader retail industry and compares these with the
strategic and operational risks outlined by management in connection with the five-year planning process discussed
above. Additionally, the board exercises its risk oversight function in approving the annual budget and quarterly re-
forecasts and in reviewing the Company’s long-range strategic and financial plans with management. The board’s
role in risk oversight has not had any effect on the board’s leadership structure.
Director Compensation
The goal of our director compensation is to help attract, retain and reward our non-employee directors and
align their interests with those of the shareholders. Our desired goal for total director compensation (cash and
equity) is to be at the 50th percentile of comparable companies based on our compensation consultant’s competitive
survey results.
The Company pays its non-employee directors an annual fee for their services as members of the board of
directors. Each non-employee director receives an annual cash retainer of $55,000 and the lead independent director
receives an additional $35,000. The audit committee chairperson receives an additional $25,400 per year, the
compensation committee chairperson receives and additional $19,000 per year and the governance & nominating
committee chairperson receives an additional $16,500. Directors appointed in an interim period receive pro-rata
retainer fees based on the number of meetings they attend between annual shareholder meetings. The committee
chairperson and the respective committee members are paid rates commensurate with the duties and responsibilities
inherent within the position held.
Additionally, the Company issues restricted stock awards to its non-employee directors. The board believes
such awards provide alignment with the interests of our shareholders. Directors appointed in an interim period
receive pro-rata restricted stock awards based on the number of meetings they attend between annual shareholder
meetings.
The Company reimburses all directors for reasonable expenses incurred to attend meetings of the board of
directors. Non-employee directors may elect to have a portion, or all, of their annual retainer be used for the
reimbursement of travel expenses in excess of those that the Company considers to be reasonable.
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The following table discloses the cash paid and stock awards earned by each of the Company’s non-employee
directors during the fiscal year ending February 2, 2019:
Name
Matthew L. Hyde .............................................
Ernest R. Johnson.............................................
Sarah (Sally) G. McCoy...................................
Travis D. Smith................................................
James M. Weber...............................................
Kalen F. Holmes ..............................................
Scott A. Bailey .................................................
Fees Earned
or Paid in
Cash
($)
55,000
80,400
90,000
74,000
55,000
71,500
55,000
Stock
Awards (1)
($)
85,000
85,000
85,000
85,000
85,000
85,000
85,000
Total
($)
140,000
165,400
175,000
159,000
140,000
156,500
140,000
(1) This column represents the aggregate grant-date fair value of restricted stock awards calculated in accordance
with FASB ASC Topic 718, excluding the impact of estimated forfeitures related to service based vesting
conditions. For assumptions used in determining these values, please see Note 2 (listed under Stock-Based
Compensation) in the Notes to Consolidated Financial Statements in our fiscal 2018 Form 10-K.
On June 6, 2018, the day of the annual shareholder meeting, the Company awarded 3,189 shares of restricted
stock to each of the current directors with a grant-date fair value of $85,000. The stock awards will vest on the
earlier of June 6, 2019 or at the end of the directors scheduled term, if applicable.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company currently has nine director positions. The directors are divided into three classes so that
approximately one-third of the directors are elected each year for three-year terms. The Company believes that a
classified board promotes continuity of experience and an orderly succession of directors, which, in turn, increases
the stability of the Company and encourages a long-term corporate perspective. Directors are elected to hold office
until their successors are elected and qualified, or until resignation or removal in the manner provided in our bylaws.
Three directors are nominees for election this year and each has consented to serve a three-year term ending in 2022.
The remaining directors will continue to serve the terms set out below.
The nominees for director in an uncontested election, such as this one, will be elected if the votes cast in favor
of a nominee’s election exceed the votes cast opposing such nominee’s election. Abstentions and broker non-votes
are not considered “votes cast.” Likewise, a share otherwise present at the meeting as to which a shareholder gives
no authority or direction to vote is also not considered a “vote cast.”
In a contested election, the directors shall be elected by a plurality of the votes cast. A “contested election”
means an election of directors of the Company in which the number of nominees for any election of directors
nominated by (i) the board of directors, or (ii) any shareholder pursuant to Article 1, Section 10 of the Company’s
bylaws, or (iii) a combination of nominees by the board of directors and any shareholder pursuant to Article I,
Section 10 of the Company’s bylaws, exceed the number of directors to be elected.
A nominee for director in an uncontested election who does not receive the requisite votes for election, but
who was a director at the time of the election, shall continue to serve as a director for a term that shall terminate on
the date that is the earlier of: (i) ninety (90) days from the date on which the voting results of the election are
certified, (ii) the date on which an individual is selected by the board of directors to fill the office held by such
director, which selection shall be deemed to constitute the filling of a vacancy by the board of directors, or (iii) the
date the director resigns. Except in the foregoing sentence, a director who failed to receive a majority vote for
election will not participate in the filling of his or her office. If none of the directors receive a majority vote in an
uncontested election, then the incumbent directors (a) will nominate a slate of directors and hold a special meeting
for the purpose of electing those nominees as soon as practicable, and (b) may in the interim fill one or more offices
with the same director(s) who will continue in office until their successors are elected. If, for any reason, the
directors shall not have been elected at any annual meeting, they may be elected at a special meeting of shareholders
called for that purpose in the manner provided by the Company’s bylaws.
We invite and recommend all of our directors and the nominees for director to attend our annual meeting of
shareholders.
Nominees for Election for Terms Expiring in 2022
Kalen F. Holmes, 52, was appointed to our board in December 2014. Ms. Holmes served as an Executive
Vice President of Partner Resources (Human Resources) at Starbucks Corporation from November 2009 until her
retirement in February 2013. Prior to her employment with Starbucks, Ms. Holmes held a variety of leadership roles
with HR responsibility for Microsoft Corporation from September 2003 through November 2009. Prior to joining
Microsoft, Ms. Holmes served in a variety of industries, including high-tech, energy, pharmaceuticals and global
consumer sales. She serves on the Board of Directors and as Chairperson of the Compensation Committee of Red
Robin Gourmet Burgers, Inc. She serves on the Board of Directors of One Medical and is the Chairperson of its
Compensation Committee. She also serves on the Board of Trustees for the Pacific Northwest Ballet. Ms. Holmes
holds a Bachelor of Arts in Psychology from the University of Texas and a Master of Arts and a Ph.D. in
Industrial/Organization Psychology from the University of Houston.
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Director Qualifications: Ms. Holmes’ extensive expertise in human resources and people development adds
important and relevant experience to the Company’s board of directors. Her background in a variety of industries,
including retail, provides insight and experience in successfully developing and executing long term strategy related
to operations and human resources. In addition, she has experience with large international organizations as they
grew in scale to become large multinational corporations and this experience will be beneficial to the Company as it
grows in size and scale.
Travis D. Smith, 46, was appointed to our board of directors in August 2012. Mr. Smith has been the Chief
Executive Officer of Electronic Auction Services, Inc, a privately held software company, since April 2016. He also
serves on their Board of Directors. Prior to his employment with Electronic Auction Services, Inc., he was the CEO
and President of Jo-Ann Fabric and Craft stores from August 2011 until August 2014. Mr. Smith began his career
with Jo-Ann in 2006 serving as the Executive Vice President, Merchandising and Marketing. In February 2009, Mr.
Smith was named Chief Operating Officer and added the duties of President in February 2010, then Chief Executive
Officer in August 2011. Prior to his employment with Jo-Ann, Mr. Smith held merchandising and marketing
positions of increasing responsibility with Fred Meyer Stores, a division of the Kroger Company, ultimately serving
as Senior Vice President, General Merchandise. Mr. Smith has also served on the Board of Directors of Pendleton
Woolen Mills since February of 2016. Mr. Smith is a graduate of the University of Notre Dame with a Bachelor’s
Degree in Business Marketing and Communications.
Director Qualifications: Mr. Smith’s background in retailing and in particular merchandising, marketing and
leadership roles adds important and relevant experience to the Company’s board of directors. Mr. Smith also brings
experience in brand building, retail brick and mortar and direct to customer operations.
Scott A. Bailey, 55, was appointed to our board in February 2016. Mr. Bailey is CEO of Path Projects, a
running apparel company that he founded in 2017 that sells shorts, shirts, hats and base layers designed for runners
directly to consumers. From 2002 to 2015 Mr. Bailey was the CEO and co-founder of One Distribution Company, a
leading skate-inspired apparel and footwear company whose brands included KR3W Denim and SUPRA Footwear.
KR3W is a lifestyle brand born out of the skateboard culture on the streets of Southern California in 2003 and is
known for its denim apparel and SUPRA was launched in 2006 as a premium footwear brand known for its premium
high top sneakers. Prior to One Distribution, Mr. Bailey was the co-founder of Split Inc., a youth culture men’s and
women’s apparel brand founded in the early 1990s.
Director Qualifications: Mr. Bailey brings a unique brand and vendor perspective to the Company’s board of
directors. He has had over a 25 year career as a co-founder and CEO of influential brands in the apparel and
footwear space and his experience in growing and building brands both domestically and internationally will be
beneficial to the board of directors in an ever changing consumer environment. Also, his understanding of the youth
lifestyle customer is also very valuable to the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE PREVIOUSLY
NAMED
Continuing Directors Whose Terms Expire in 2020
Thomas D. Campion, 70, is one of our co-founders and has served on our board of directors since our
inception in 1978. Mr. Campion has held various senior management positions during this time, including serving as
our Chairman since June 2000. From November 1970 until August 1978, he held various management positions
with JC Penney Company. Mr. Campion holds a B.A. in Political Science from Seattle University. Mr. Campion
serves on the Board of the Alaska Wilderness League, a Washington, D.C. based environmental group. He is the
trustee of the Campion Foundation, a nonprofit organization focused on ensuring that biologically important
ecosystems in Northwestern North America are preserved. The Foundation also works on homelessness issues in the
Pacific Northwest. He is also a trustee of the Campion Advocacy Fund, a 501(c)(4) organization that was founded to
support and strengthen efforts to end homelessness in the U.S. and protect wilderness in western North America
through direct advocacy and political engagement.
11
Director Qualifications: Mr. Campion’s knowledge as a retailer and as the co-founder of the Company
provides the board with invaluable insight into the Company’s business and its unique culture. Mr. Campion
provides generational leadership, sales, marketing, merchandising and brand building experience and expertise.
Mr. Campion’s particular knowledge and experience with Zumiez and its competition helps the Company formulate
short and long-term strategies that have contributed to Zumiez differentiating itself in the specialty niche of lifestyle
retailing. As one of the Company’s largest shareholders, Mr. Campion’s interests are aligned with other Zumiez
shareholders’ interests to increase the long-term value of the Company.
Sarah (Sally) G. McCoy, 58, was appointed to our board of directors in October 2010 and was the CEO and
President of CamelBak Products, a company that originated hands free-hydration and is the leader in hydration
products until January of 2016. Ms. McCoy had been the CEO and President of CamelBak since September of 2006.
Prior to joining CamelBak, Ms. McCoy co-founded Silver Steep Partners in 2004, a leading investment banking firm
catering to companies in the outdoor and active lifestyle industry. Before Silver Steep, McCoy served as president of
Sierra Designs and Ultimate Direction and as vice president at The North Face. She serves on the board of directors
of Compass Group Diversified Holdings LLC and Implus. She also serves on the board of directors and is the chair
of Helinox USA and the Outdoor Foundation. Ms. McCoy is a graduate of Dartmouth College.
Director Qualifications: Ms. McCoy’s background in sales, merchandising, sourcing, marketing and
executive management of outdoor and lifestyle consumer brands provides strategic insight and direction for Zumiez
as we plan our branded and private label growth strategies. Additionally, her experience in investment banking and
valuation experience in our industry is valuable as we formulate our growth strategies.
Ernest R. Johnson, 68, was appointed to our board of directors in July 2011 and has served as the Chairman of
Cutter & Buck Inc. and President and Chief Executive Officer for New Wave USA Inc. since November 2009. From
February 2006 to November 2009, he served as Chief Executive Officer of Cutter & Buck. Mr. Johnson was also a
Senior Vice President and Chief Financial Officer for Cutter & Buck from November 2002 to February 2006. Prior
to joining Cutter & Buck, he worked 29 years in several commercial banks holding various senior accounting and
financial positions. Mr. Johnson holds a B.A. in Business Administration—Accounting from Washington State
University.
Director Qualifications: Mr. Johnson’s background as a CEO for an apparel company and as a CFO for an
apparel company and commercial banks provides relevant leadership and financial expertise to the Company’s
board of directors. Mr. Johnson also has experience in international business and in mergers and acquisitions.
Continuing Directors Whose Terms Expire in 2021
Richard M. Brooks, 59, has served as our CEO since June 2000. From August 1993 through June 2000, he
served as a Vice President and our Chief Financial Officer. From November 1989 until February 1992, Mr. Brooks
was with Interchecks, Inc., a subsidiary of Bowater PLC, as a finance officer. Mr. Brooks was with Deloitte,
Haskins & Sells, currently known as Deloitte LLP, from July 1982 to March 1989. Mr. Brooks holds a B.A. in
Business from the University of Puget Sound.
Director Qualifications: Mr. Brooks’ day to day leadership as our CEO provides him with detailed knowledge
of our business and operations. Mr. Brooks provides generational leadership, sales, marketing, merchandising and
brand building experience and expertise. Mr. Brooks has demonstrated a record of innovation, achievement and
leadership. This experience provides the board with a unique perspective into the operations and vision of Zumiez.
Mr. Brooks’ particular knowledge and experience with Zumiez and its competition helps the Company formulate
short and long-term strategies that have helped Zumiez differentiate itself in the specialty niche of lifestyle retailing.
As one of the Company’s largest shareholders, Mr. Brooks’ interest is aligned with other Zumiez shareholders’
interests to increase the long-term value of the Company.
12
Matthew L. Hyde, 56, was appointed to our board in December 2005 and was the Chief Executive Officer and
President and a member of the Board of Directors at West Marine, Inc. from June 2012 until his retirement in
October 2017. Previously he served as an Executive Vice President of Recreational Equipment Inc. (“REI”), where
he had been since 1986, responsible for Marketing, Direct Sales, Real Estate and Retail operations. Mr. Hyde
previously led REI's online division, championing its award-winning multi-channel strategy. He currently serves on
the board of the YMCA of the USA as its chairman and is the Executive Chairman of 5.11 Tactical. Mr. Hyde holds
a Bachelor's of Science degree from Oregon State University.
Director Qualifications: Mr. Hyde’s background in a retail company, including his online retail and brand
marketing experience, is of critical importance to the board. Mr. Hyde also provides critical merchandising and
brand building expertise because of his long tenure in specialty retail. Mr. Hyde’s successful expertise in building a
retail brick and mortar, direct and multi-channel strategy provides insight and experience as the Company plans its
growth in these channels of distribution.
James M. Weber, 59, was appointed to our board in April 2006 and is the Chairman and CEO of Brooks
Sports Inc., a leading running shoe and apparel company, where he has been since 2001. Mr. Weber’s experience
also includes positions as Managing Director of U.S. Bancorp Piper Jaffray Seattle Investment Banking practice,
Chairman and CEO of Sims Sports, President of O’Brien International, Vice President of The Coleman Company
and various roles with the Pillsbury Company. Mr. Weber earned an M.B.A., with distinction, from the Tuck School
at Dartmouth College and is a graduate of the University of Minnesota.
Director Qualifications: Mr. Weber’s role as the CEO of a sports related company and his international
business experience, extensive brand building, marketing and CEO experience provide our board with a very useful
perspective as the Company plans its growth strategies.
13
CORPORATE GOVERNANCE
Independence of the Board of Directors and its Committees
As required under Nasdaq listing rules, a majority of the members of a listed company’s board of directors
must qualify as “independent,” as affirmatively determined by the board of directors. Our board of directors consults
with our counsel to ensure that the board’s determinations are consistent with all relevant securities and other laws
and regulations regarding the definition of “independent,” including those set forth in applicable Nasdaq listing
rules, as in effect from time to time.
Consistent with these considerations, after review of all relevant transactions or relationships between each
director or any of his or her family members and the Company, our senior management and our independent
auditors, our board of directors has affirmatively determined that all of our directors are independent directors within
the meaning of the applicable Nasdaq listing rules, except for our Chairman, Mr. Campion, and CEO, Mr. Brooks.
As required under applicable Nasdaq listing rules, our independent directors meet in regularly scheduled
executive sessions at which only independent directors are present. All of the committees of our board of directors
are comprised of directors determined by the board to be independent within the meaning of the applicable Nasdaq
listing rules.
Director Tenure; No Term Limits
The Board currently believes it is not necessary to institute term limits for Directors. Directors who serve on
the Board for an extended period of time are able to provide valuable insight into the operations and future of the
Company based on their experience with, and understanding of, the Company and its history, policies and
objectives. The Board believes that, as an alternative to term limits, it can ensure that the Board continues to evolve
and adopt new viewpoints through its evaluation and nomination process and procedures.
Other Company Board and Committee Service
The Company values the experience directors bring from other boards on which they serve, but recognizes
that those boards may also present demands on a director’s time and availability and may present conflicts or legal
issues. Directors are required to advise the Chair of the Governance and Nominating Committee and the CEO
before accepting membership on other boards of directors, membership on the audit committee of the other boards
in particular, or other significant commitments involving affiliation with other businesses or governmental units.
Accordingly, no director may serve on over five public company boards (including the Company's Board) and
no member of the Audit Committee may serve on over three public company audit committees (including the
Company's Audit Committee). In addition, directors who serve as CEOs or in equivalent positions generally should
not serve on over two public company boards (including the Company's Board) besides their employer's board.
Certain Relationships and Related Transactions
The Company committed charitable contributions to the Zumiez Foundation of $0.9 million in fiscal 2018 and
$0.8 million in fiscal year ending February 3, 2018 (“fiscal 2017”). Our Chairman, Thomas D. Campion, is the
Chairman of the Zumiez Foundation.
14
Policy and Procedures with Respect to Related Person Transactions
The Company recognizes that Related Person Transactions (defined as transactions, arrangements or
relationships in which the Company was, is or will be a participant and the amount involved exceeds $10,000, and in
which any Related Person (defined below) had, has or will have a direct or indirect interest) may raise questions
among shareholders as to whether those transactions are consistent with the best interests of the Company and its
shareholders. It is the Company’s written policy to enter into or ratify Related Person Transactions only when the
board of directors, acting through the audit committee of the board of directors, determines that the Related Person
Transaction in question is in, or is not inconsistent with, the best interests of the Company and its shareholders,
including but not limited to situations where the Company may obtain products or services of a nature, quantity or
quality, or on other terms, that are not readily available from alternative sources or when the Company provides
products or services to Related Persons on an arm’s length basis on terms comparable to those provided to unrelated
third parties or on terms comparable to those provided to employees generally. A summary of the Company’s
policies and procedures with respect to review and approval of Related Person Transactions are set forth below.
“Related Persons” are defined as follows:
•
•
•
•
any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director or
executive officer of the Company or a nominee to become a director of the Company;
any person who is known to be the beneficial owner of more than 5% of any class of the Company’s
voting securities;
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent,
stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person
(other than a tenant or employee) sharing the household of such director, executive officer, nominee or
more than 5% beneficial owner; and
any firm, corporation or other entity in which any of the foregoing persons is employed or is a general
partner or principal or in a similar position or in which such person has a 5% or greater beneficial
ownership interest.
Directors and executive officers are required to submit to the audit committee a list of immediate family
members and a description of any current or proposed Related Person Transactions on an annual basis and provide
updates during the year.
In its review of any Related Person Transactions, the audit committee shall consider all of the relevant facts
and circumstances available to the audit committee, including (if applicable) but not limited to: the benefits to the
Company; the impact on a director’s independence in the event the Related Person is a director, an immediate family
member of a director or an entity in which a director is a partner, shareholder or executive officer; the availability of
other sources for comparable products or services; the terms of the transaction; and the terms available to unrelated
third parties or to employees generally. No member of the audit committee shall participate in any review,
consideration or approval of any Related Person Transaction with respect to which such member or any of his or her
immediate family members is the Related Person. The audit committee shall approve or ratify only those Related
Person Transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders
as the audit committee determines in good faith. The audit committee shall convey the decision to the CEO, Chief
Legal Officer or the Chief Financial Officer, who shall convey the decision to the appropriate persons within the
Company.
Policy on Insider Trading
In general, employees of the Company and its directors are subject to a separate insider trading policy that
prohibits them from buying, selling or transferring the Company’s securities except during a pre-determined window
period, which commences one full business day after the public announcement of the Company’s same store sales
following the Company’s quarterly or annual earnings and ending on the day two weeks thereafter.
15
Employees and directors are prohibited from buying, selling or transferring the Company’s securities, even
within the window period, if they are aware of any material non- public information. Material information is
information that might affect the Company’s stock price or otherwise be of significance to an investor who is
determining whether to purchase, sell or hold the Company’s securities.
Policy on Derivative Securities and Hedging Activities
The Company maintains a policy related to derivative securities and hedging activities as these securities and
activities may put the personal interests and objectives in conflict with the best interests of the Company and its
shareholders. Absent the prior written consent of the CFO or the Chief Legal Officer, individuals who are subject to
this policy (including immediate family members), may not purchase, sell and trade-in options, warrants, puts and
calls, or similar instruments or engage in derivative securities involving or relating to the Company’s securities. In
addition, without the prior written consent of the CFO or the Chief Legal Officer, hedging or monetization
transactions such as zero-cost collars and forward sale contracts that allow a person to lock in a portion of the value
of his or her shares, often in exchange for all or part of the potential for upside appreciation in the shares, are
prohibited.
Anti-Pledging Policy
Our insider trading policy prohibits individuals who are subject to the policy (including immediate family
members) from holding the Company’s securities in a margin account or pledging Company securities as collateral
for a loan.
Information Regarding the Board of Directors and its Committees
Our board has established an audit committee, compensation committee and governance and nominating
committee. The board has adopted a written charter for each committee. The charters of these three committees are
posted on the Company’s website and can be accessed free of charge at http://ir.zumiez.com and are available in
print to any shareholder who requests them. The composition of our board committees complies with the applicable
rules of the SEC and Nasdaq. The board has determined that Ernest R. Johnson is an audit committee financial
expert as defined in the rules of the SEC.
Audit Committee
Governance & Nominating
Committee
Compensation Committee
Matthew L. Hyde ...................
Ernest R. Johnson
.............
Sarah (Sally) G. McCoy
.....
Travis D. Smith .....................
James M. Weber .....................
Kalen F. Holmes.....................
Scott A. Bailey .......................
Chairperson
Member
Lead Independent
Director
Audit Committee
Financial Expert
16
Audit Committee
As more fully described in its charter, our audit committee has responsibility for, among other things:
•
•
•
•
•
•
•
the sole authority to appoint, determine the funding for and oversee the independent registered public
accounting firm;
assisting our board in monitoring the integrity of our financial statements and other SEC filings;
discussing with our management and our independent registered public accounting firm significant
financial reporting issues and judgments and any major issues as to the adequacy of our internal controls;
reviewing our annual and quarterly financial statements prior to their filing with the SEC and prior to the
release of our results of operations;
reviewing the independence, performance and qualifications of our independent registered public
accounting firm and presenting its conclusions to our board and approving, subject to permitted
exceptions, any non-audit services proposed to be performed by the independent registered public
accounting firm;
oversight of the performance of the Company’s internal audit function; and
reviewing its charter at least annually for appropriate revisions.
The audit committee has the power to investigate any matter brought to its attention within the scope of its
duties and to retain counsel for this purpose where appropriate.
Governance and Nominating Committee
As more fully described in its charter, our governance and nominating committee has the responsibility for,
among other things:
•
•
recommending persons to be selected by the board as nominees for election as directors and as chief
executive officer;
assessing our directors’ and our board’s performance;
• making recommendations to the board regarding membership and the appointment of chairpersons of the
board’s committees;
recommending director compensation and benefits policies;
reviewing its charter at least annually for appropriate revisions; and
recommending to the board other actions related to corporate governance principles and policies.
•
•
•
Compensation Committee
As more fully described in its charter, our compensation committee has responsibility for, among other things:
•
•
•
establishing the Company’s philosophy, policies and strategy relative to executive compensation,
including the mix of base salary, short-term and long-term incentive and equity based compensation
within the context of the stated policies and philosophy including management development and
succession planning practices and strategies;
reviewing corporate goals and objectives relevant to compensation of our CEO and other senior
executives including review and approval of performance measures and targets for all executive officers
participating in the annual executive non-equity incentive bonus plan and certify achievement of
performance goals after the annual measurement period to permit bonus payouts under the plan;
determining and approving our CEO’s compensation and making recommendations to the board with
respect to compensation of other executive employees, including any special discretionary compensation
and benefits;
17
•
administering our incentive compensation plans and equity based plans and making recommendations to
the board with respect to those plans;
• making recommendations to our board with respect to the compensation of directors;
•
•
the sole authority to appoint, determine the funding for and oversee the independent compensation
consultant; and
reviewing its charter at least annually for appropriate revisions.
Succession Planning
Our CEO and board of directors review at least annually the succession plan of our CEO and each of our
named executive officers (“NEO” or “NEOs”). The board of directors conducts an annual review of, and provides
approval for, our management development and succession planning practices and strategies.
Our CEO provides an annual report to the board of directors assessing senior management and their potential
successors. As part of this process, contingency plans are presented in the event of our CEO’s termination of
employment for any reason (including death or disability). The report to the board of directors also contains the
CEO’s recommendation as to his successor. The full board of directors has the primary responsibility to develop
succession plans for the CEO position.
Meetings of the Board of Directors and Board and Committee Member Attendance
In fiscal 2018, our board of directors met five times, the governance and nominating committee met four
times, the audit committee met four times and the compensation committee met three times. The board of directors
and the committees acted by unanimous written consent when required during the last fiscal year. Each board
member attended 75% or more of the aggregate number of meetings of the board, and of the committees on which
he or she served, that were held during the period for which he or she was a director or committee member. The
Company has a formal policy pursuant to which members of the board of directors are expected to attend annual
shareholder meetings absent unusual circumstances that make attendance impracticable.
Shareholder Communications with the Board of Directors; Shareholder Engagement
The Company has a process by which shareholders may communicate directly with directors, including non-
employee directors, by mailing such communication to the board of directors in care of the Company’s Secretary, at
the Company’s headquarters in Lynnwood, Washington. The mailing envelope must contain a clear notation
indicating that the enclosed letter is a “Shareholder-Board Communication” or “Shareholder-Director
Communication.” All such letters must identify the author as a shareholder and clearly state whether the intended
recipients are all members of the board or just certain specified individual directors. The Secretary will make copies
of all such letters and circulate them to the appropriate director or directors. All such communications will be
forwarded to the intended director(s) without editing or screening. If these foregoing procedures are modified, then
updated procedures will be posted on the Company’s corporate website.
The Company maintains an active dialogue with shareholders to ensure a diversity of perspectives are
thoughtfully considered. The Board believes that the responsibility lies with management for communications and
relationships on behalf of the Company with institutional investors, the media, and customers. Therefore, the Board
may participate occasionally in such interaction, but will generally do so only at the request of or with the prior
knowledge of management. It has been the Company’s practice for the Lead Independent Director to periodically
accompany management to meetings with the Company’s institutional investors.
Code of Conduct and Ethics
Our board has adopted a code of conduct and ethics applicable to our directors, executive officers, including
our chief financial officer and other of our senior financial officers, and employees in accordance with applicable
rules and regulations of the SEC and Nasdaq. The code of conduct is available at http://ir.zumiez.com under the
“Governance” section.
18
Corporate Governance Guidelines
Our board has adopted corporate governance guidelines that provide an overview of the governance structure
maintained at the Company and policies related thereto. The guidelines are available at http://ir.zumiez.com under
the “Governance” section.
Executive Compensation Recovery Policy
The Company maintains an executive compensation recovery policy. Pursuant to this policy, the Company
may recover incentive income that was based on the achievement of quantitative performance targets if the
executive officer engaged in fraud or intentional misconduct that resulted in an increase in his or her incentive
income. Incentive income includes all incentive income and compensation that the compensation committee
considers to be appropriate based upon the circumstance.
The compensation committee has the sole discretion to administer this policy and take actions under it,
including soliciting recommendations from the audit committee and the full board of directors and retaining outside
advisors to assist in making its determinations. The actions taken by the compensation committee are independent of
any action imposed by law enforcement agencies, regulators or other authorities.
Director Nomination Procedures
The nominations to the board of directors were completed by the governance and nominating committee. The
governance and nominating committee has established board membership criteria (discussed above, under the
section entitled “Membership Criteria for Board Members”) and the procedures for selecting new directors.
Nominations to the board of directors are completed using procedures in accordance with the charter of the
governance and nominating committee including the director qualifications, criteria and skills as outlined in such
charter. These procedures include:
•
•
•
•
•
Initial review of potential director candidates by the committee as submitted by the independent directors
of the board based on our established criteria for board membership including (without limitation)
experience, skill set, diversity and the ability to act effectively on behalf of the shareholders and such
other criteria as the committee may deem relevant from time to time.
Each director candidate was put forth for consideration as a director candidate independently by our
independent directors based on their knowledge of the candidates. None of our independent directors had
a relationship with any candidates that would impair his or her independence. Each candidate’s biography
was reviewed by each member of the committee with the intention that each candidate would bring a
unique perspective to benefit our shareholders and management.
Interviews of director candidates were conducted by members of the committee and senior management.
These interviews confirmed the committee’s initial conclusion that candidates met the qualifications,
criteria and skills to serve as a director of the Company.
Reference checks were conducted if further checks were required based on the level of knowledge about
the candidate by members of the committee.
Background checks were conducted, including criminal, credit and bankruptcy, SEC violations and/or
sanctions, work history and education.
19
•
•
Independence questionnaires were completed by candidates and then reviewed by the Company, the
committee and the Company’s legal counsel to ensure candidates meet the requirements to be an
independent director for the board, audit committee, compensation committee and the governance and
nominating committee. The review also ensures the candidates positions do not conflict in any material
way with Company business.
Conclusion to nominate a candidate is based on all of the procedures reviewed previously and the
information attached. It is ensured through these procedures that the candidate appears to be well
qualified to serve on the Company’s board of directors and its committees and appears to meet Nasdaq
and SEC requirements to be able to serve as an independent director and as a member of the audit
committee and any other committee the board may assign to such director.
The governance and nominating committee of the board will consider qualified nominees recommended by
shareholders who may submit recommendations to the governance and nominating committee in care of our
Chairman of the Board and Secretary at the following address:
Board of Directors and Chairman of the Board
c/o Secretary
Zumiez Inc.
4001 204th Street SW
Lynnwood, Washington 98036
Nominees for director who are recommended by our shareholders will be evaluated in the same manner as any
other nominee for director. Shareholder recommendations for director should include the following information:
•
•
•
•
•
•
the name, age, residence, personal address and business address of the shareholder who intends to make
the nomination and of the person(s) to be nominated;
the principal occupation or employment, the name, type of business and address of the organization in
which such employment is carried on of each proposed nominee and of the shareholder who intends to
make the nomination;
a representation that the shareholder is a holder of record of stock of the Company, including the number
of shares held and the period of holding;
a description of all arrangements or understandings between the shareholder and the recommended
nominee;
such other information regarding the recommended nominee as would be required to be included in a
proxy statement filed pursuant to Regulation 14A promulgated by the SEC pursuant to the Securities
Exchange Act of 1934, as amended; and
the consent of the recommended nominee to serve as a director of the Company if so elected.
The governance and nominating committee may require that the proposed nominee furnish the committee with
other information as it may reasonably request to assist it in determining the eligibility of the proposed nominee to
serve as a director.
To submit a recommendation for director for an upcoming annual shareholder meeting, it is necessary that a
proposing shareholder notify the Company and provide the information set forth previously, no later than 120 days
prior to the corresponding date on which the Company’s annual proxy statement is mailed in connection with the
most recent annual meeting.
20
General Director Nomination Right of All Shareholders
Any shareholder of the Company may nominate one or more persons for election as a director of the Company
at an annual meeting of shareholders if the shareholder complies with the notice, information and consent provisions
contained in Article I, Section 10 of the Company’s bylaws. Specifically, these provisions require that written notice
of a shareholder’s intent to make a nomination for the election of directors be received by the Secretary not fewer
than 120 days and not more than 150 days prior to the anniversary date of the prior year’s annual meeting of
shareholders.
The Secretary will send a copy of the Company’s bylaws to any interested shareholder who requests them.
21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information regarding the beneficial ownership of our common stock as of
March 27, 2019 by: (i) each of our directors; (ii) each of our NEOs; (iii) all of our named executive officers and
directors as a group; and (iv) each person, or group of affiliated persons, known by us to beneficially own more than
5% percent of our common stock. The table is based upon information supplied by our officers, directors and
principal shareholders and a review of Schedule 13G reports filed with the SEC. Unless otherwise indicated in the
footnotes to the table and subject to community property laws where applicable, we believe that each of the
shareholders named in the table has sole voting and investment power with respect to the shares indicated as
beneficially owned.
Applicable percentages are based on shares outstanding on March 27, 2019, adjusted as required by rules
promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess
sole or shared voting power or investment power with respect to those securities. In addition, the rules include
shares of common stock issuable pursuant to the exercise of stock options that are either immediately exercisable or
exercisable on or before May 26, 2019, which is 60 days after March 27, 2019. These shares are deemed to be
outstanding and beneficially owned by the person holding those options for the purpose of computing the percentage
ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Except as noted below, the address for each person that holds 5% or more of our
common stock is c/o Zumiez Inc., 4001 204th Street SW, Lynnwood, Washington 98036.
Name of Beneficial Owner
Richard M. Brooks (1) ...........................................
Thomas D. Campion (2).........................................
Troy R. Brown (3) ..................................................
Christopher C. Work (4).........................................
Chris K. Visser (5) .................................................
Adam C. Ellis (6) ...................................................
James M. Weber (7) ...............................................
Matthew L. Hyde (8) ..............................................
Ernest R. Johnson (9) .............................................
Sarah (Sally) G. McCoy (10) .................................
Kalen F. Holmes (11) .............................................
Travis D. Smith (12)...............................................
Scott A. Bailey (13)................................................
All Named Executive Officers and Directors
as a group (13 persons)......................................
Black Rock, Inc. (14) .............................................
The Vanguard Group (15) ......................................
Dimensional Fund Advisors LP (16) .....................
Number of
Common Shares
Beneficially Owned
3,073,024
2,313,240
164,803
81,258
59,970
56,906
41,713
39,380
29,647
29,597
19,584
17,770
9,175
5,936,067
2,991,857
2,236,431
2,145,655
Percentage of
Shares
Beneficially
Owned
11.9%
9.0%
0.6%
0.3%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
0.1%
0.0%
23.1%
11.7%
8.8%
8.4%
(1) Mr. Brooks is our CEO and a Director.
(2) Includes shares of common stock held by grantor retained annuity trusts for which Thomas D. Campion is
trustee. Mr. Campion is our Chairman of the Board. Includes a total of 168,437 shares held by the Campion
Foundation and the Campion Advocacy Fund; while Mr. Campion does not have a pecuniary interest in these
shares he does maintain voting and investment power over these shares.
(3) Consists of 81,567 shares of stock held by Mr. Brown, of which 65,004 shares are restricted, and 83,236 vested
stock options. Mr. Brown is our President North America.
(4) Consists of 40,518 shares of stock held by Mr. Work, of which 17,185 shares are restricted, and 40,740 vested
stock options. Mr. Work is our Chief Financial Officer.
(5) Consists of 22,688 shares of stock held by Mr. Visser, of which 16,298 shares are restricted, and 37,282 vested
stock options. Mr. Visser is our Chief Legal Officer and Secretary.
22
(6) Consists of 45,421 shares of stock held by Mr. Ellis of which 26,253 shares are restricted and 11,485 vested
stock options. Mr. Ellis is our President International.
(7) Consists of 41,713 shares of stock held by Mr. Weber, of which 3,189 shares are restricted. Mr. Weber is one of
our directors.
(8) Consists of 39,380 shares of stock held by Mr. Hyde, of which 3,189 shares are restricted. Mr. Hyde is one of
our directors.
(9) Consists of 29,647 shares of stock held by Mr. Johnson, of which 3,189 shares are restricted. Mr. Johnson is
one of our directors.
(10) Consists of 29,597 shares of stock held by Ms. McCoy, of which 3,189 shares are restricted. Ms. McCoy is one
of our directors.
(11) Consists of 19,584 shares of stock held by Ms. Holmes, of which 3,189 shares are restricted. Ms. Holmes is one
of our directors.
(12) Consists of 17,770 shares of stock held by Mr. Smith, of which 3,189 shares are restricted. Mr. Smith is one of
our directors.
(13) Consists of 9,175 shares of stock held by Mr. Bailey, of which 3,189 shares are restricted. Mr. Bailey is one of
our directors.
(14) This information is based solely on a Schedule 13G filed January 31, 2019 by BlackRock, Inc. The business
address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(15) This information is based solely on a Schedule 13G filed February 11, 2019 by The Vanguard Group. The
business address of The Vanguard Group, Inc. is 100 Vanguard Blvd. Malvern, PA 19355.
(16) This information is based solely on a Schedule 13G filed February 8, 2019 by Dimensional Fund Advisors LP.
The business address of Dimensional Fund Advisors LP is Building One 6300 Bee Cave Road, Austin, Texas
78746.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more
than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of our common stock and other equity securities. Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written
representations that no other reports were required, during fiscal 2018, all applicable Section 16(a) filing
requirements were met and that all such filings were timely.
23
EXECUTIVE OFFICERS
As of the end of fiscal 2018 the names, ages and positions of the current non-director executive officers of the
Company are listed below, along with their respective business experience. No family relationships exist among any
of the directors or executive officers of the Company.
Troy R. Brown, 56, has served as our President North America since March 8, 2017. Prior to that time he
served as the Executive Vice President of Ecommerce and Omni-Channel since August 2012. From October 2008
through July 2012, he served as the Senior Vice President of Ecommerce. From February 2007 through August
2008, Mr. Brown was with Tommy Bahama as the Director of Ecommerce. From March 2005 until September
2006, he was with Expedia, where he served as General Manager (“GM”) of Vacation Packages. From August 1994
until March 2005, Mr. Brown was with Eddie Bauer in various management positions including Vice President of
Ecommerce. Prior to August 1994, he was employed by Nautica Inc, and ZCMI, where he held various management
positions. Mr. Brown has more than 30 years experience in the retail, wholesale and Ecommerce industries.
Chris K. Visser, 48, serves as our Chief Legal Officer and Secretary. Mr. Visser oversees all legal affairs,
human resources and corporate services operations of the Company. Mr. Visser was appointed General Counsel and
Secretary in October 2012 and Executive Vice President in May 2014 before being appointed Chief Legal Officer in
May 2017. From 2001 until October 2012, Mr. Visser was with K&L Gates LLP where he has been a partner in the
corporate, securities, and mergers and acquisitions practice group. Mr. Visser also worked as a process engineer
with Vista Chemical Company prior to earning his law degree. Mr. Visser holds a Bachelor of Science degree in
Chemical Engineering from the University of Washington. Mr. Visser also obtained an M.B.A, with a Concentration
in Finance, from the University of Houston and a J.D. from the University of Houston Law Center where he
graduated with academic honors and served as an editor on the Houston Law Review.
Christopher C. Work, 40, has served as Chief Financial Officer since August 2012. Mr. Work has been
employed with the Company since October 2007, where he last served as Vice President, Controller. From
September 2002 to October 2007, Mr. Work was an employee of Ernst & Young LLP, obtaining the level of
Manager. Mr. Work received a Master of Professional Accounting from the University of Washington and a B.A. in
Accountancy from Western Washington University. Mr. Work is a Certified Public Accountant in the State of
Washington.
Adam C. Ellis, 44, was appointed to the position President International effective as of March 8, 2017 and has
responsibility for the sales and operational profitability of the Company’s operations outside of North America,
including the operations of Blue Tomato and Fast Times. Mr. Ellis has also been the Managing Director of Blue
Tomato since February 2017. Mr. Ellis previously served as the Company’s Senior Vice President of Global Retail
and Business Development since March 2014. From March 2012 through March 2014, he served as the Vice
President of Real Estate and Global and before that he served in various roles within the Company’s Real Estate
department since July 2005 when he joined the Company. Mr. Ellis obtained a M.B.A from the Kellogg School of
Management at Northwestern University and a Bachelor of Arts from Otterbein College.
24
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Our basis for competitive advantage is our culture—conceived, developed and maintained as a unique and
powerful basis for engendering commitment, accountability, competitiveness and creativity among all of our
employees. The objective of this compensation discussion and analysis is to describe how, for our named executive
officers (“NEOs”), we link our culture to compensation philosophy and then to compensation strategy; and, to
explain how we executed our compensation strategy during the last fiscal year. While the discussion and analysis
focuses on the NEOs in the compensation tables in this proxy statement, we link culture, compensation philosophy
and compensation strategy throughout the organization from the seasonal sales employee to each of the NEOs.
Value Creation Model
The following summary illustrates how the compensation philosophy and strategies are integrated with and
derived from the Zumiez culture. We believe this integrated approach supports long-term growth in shareholder
value.
The Zumiez Culture
While every organization has a culture, even if it is a culture by default, we believe that the Zumiez culture is
unique. We believe it is well defined, understood widely and thoroughly among all employees, reinforced and
exemplified by leaders held accountable for doing so and integrated into the daily practices and processes
throughout the business. We believe the Zumiez culture is a competitive advantage and is built on a set of shared
values that have been in place since the inception of the business. These shared values include:
•
•
Empowered managers—The Zumiez culture pushes decision making down to the appropriate level in
the organization within the context of appropriate guidelines, controls and procedures. This gives our
managers throughout the organization the ability to impact their results creating increased accountability,
clear measurements and a sense of ownership throughout the organization.
Teaching and learning—Our culture strives to integrate quality teaching and learning experiences
throughout the organization. We do this through a comprehensive training program, which primarily
focuses on sales and customer service training. Our training programs have been developed internally and
are almost exclusively taught internally by Zumiez employees to Zumiez employees. The training
programs have been developed to empower our managers to make good retail decisions.
25
•
•
Competition—We believe that Zumiez employees enjoy competing. Our entire system is built around
creating opportunities for people to compete and to be recognized for their contributions. This is reflected
in everything we do including empowering managers, building competition into almost all of our training
and in how we recognize the successes of our employees throughout the organization.
Fairness and honesty—Along with our employees, we strive to be fair and honest in all of our
relationships. This includes how we work with each other, our vendors, our landlords and our customers.
Culture and Compensation Philosophy
The Zumiez culture guides how we manage our business and it permeates through our compensation
philosophy. We believe our culture itself has value to our employees. Our culture allows our employees throughout
the organization to make appropriate decisions to impact their results as well as our financial results. We believe the
competitive people we hire and the training we provide helps us generate strong operating results and we believe
that our employees value working in this kind of environment.
The compensation committee believes the purpose of the compensation program for our NEOs is to help
attract, retain, align, motivate and reward executives capable of understanding, committing to, maintaining and
enhancing the culture; and, with culture as a centerpiece of our competitive advantage, establishing and
accomplishing business strategies and goals that we believe makes us an attractive investment for shareholders. To
do so, the compensation committee believes the compensation program should offer compensation opportunities
that:
•
•
•
•
•
are externally competitive with compensation paid by companies in the market for executive talent;
reward performance by linking compensation to quantitative and qualitative goals that the compensation
committee believes is in the best long-term interest of shareholders;
drive long-term shareholder thinking by delivering a substantial portion of the NEOs compensation or
wealth in the form of equity that is directly linked to our stock price;
are an effective blend of guaranteed and at-risk components, where the proportion of guaranteed pay is
less than average and the proportion of at-risk pay is greater than average when compared against the
competitive market; and
for at-risk components of pay, are an effective balance between short-term and long-term interests of our
shareholders.
The compensation committee believes that at-risk components should result in compensation for the executive
in proportion to and to the extent justified by performance. For Zumiez executives, “performance” means, first of
all, doing the right things—achieving the financial results that clearly drive the creation of shareholder value. The
compensation program must align the interests and motivations of executives with those of shareholders. Secondly,
performance means doing things right—acting as strong, respected and acknowledged leaders; and, as role models
of leadership behavior in the community at-large. We believe that exemplary executive behavior helps to support
sustainable long-term creation of shareholder value.
The compensation committee intends to continually explore, consider and introduce enhanced or new
compensation approaches and elements for NEOs as appropriate.
Compensation Goals and Strategy for NEOs
Simplicity and Transparency. The compensation committee seeks simplicity and transparency in the
compensation program for our NEOs. Therefore, the program focuses on easily understood components of clearly
determinable value—base salary, bonuses, short-term cash based incentives and long-term equity awards. We refer
to the combination of these as “total direct compensation.” The compensation committee does not use supplemental
executive benefits and perquisites that are generally not also made available to our employees.
26
Attractive Compensation Opportunities. The compensation committee believes in and commits to planning for
internal succession; however, the Company must be positioned to attract and retain high-caliber executive talent in
the external marketplace. It believes it must be positioned to bring in seasoned, proven individuals from within the
industry and beyond who can perform the full scope of their roles from the time of hire. Establishing and
maintaining the ability to attract and retain talent is a top priority for compensation of NEOs. To address this priority
responsibly on behalf of shareholders, the compensation committee works each year to:
•
•
•
Establish a conservative salary range for each position to guide salary hiring offers and salary increase
decisions.
Establish a competitive total annual cash compensation opportunity for each position through annual cash
incentives where payout is contingent on performance.
Provide opportunities to earn equity incentives in proportions so that the long-term opportunity for each
NEO to earn total direct compensation (salary plus annual cash incentives plus equity incentives) is above
average should shareholders realize above average returns.
Pay-at-Risk. The compensation committee is committed to pay-at-risk. “Pay-at-risk” means compensation that
is earned only upon clear evidence that the interests of shareholders have been served. By design, we believe the
proportion of each NEOs total direct compensation that is at-risk is greater than what is typically observed in the
marketplace. Conservative base salaries are combined with above-average cash and equity incentives to create a
total package that is competitive. We believe the pay-at risk philosophy is evidenced by the fact that no NEO has
been paid the maximum total incentive compensation in our history of being a public company. In addition, no NEO
has been paid the target total incentive compensation in four of the past five years.
Pay-for-Performance. The compensation committee believes pay-at-risk enables pay-for-performance. It
allows major portions of total direct compensation to be paid only when short-term and long-term interests of
shareholders have been met.
For short-term (annual) pay-for-performance for the NEOs as a group, the compensation committee has the
following goals:
•
Drive alignment around three general measures of performance: (1) net sales, (2) product margin and
(3) operating profit. The compensation committee believes these are the best measures because they have
the largest impact on Zumiez ability to grow profitability and provide clarity to individual executives.
Different performance measures may be utilized for different executives based in part on the executive’s
ability to impact the performance measure. We calculate these performance measures as follows:
•
•
•
Net sales—Net sales constitute gross sales (net of actual and estimated returns and deductions for
promotions) and shipping revenue. Net sales include our store sales and our ecommerce sales. Net
sales can be based on a geographic area and we currently utilize sales growth for both North
America and other international operations.
Product margin—Product margin is calculated as net sales less cost of goods sold, divided by our net
sales. For purposes of this calculation, our net sales consist of gross sales (net of actual and
estimated returns and deductions for promotions), excluding shipping revenue. For purposes of this
calculation, our cost of goods sold consist of branded merchandise costs and our private label
merchandise costs including design, sourcing, importing and inbound freight costs.
Operating profit—Operating profit is the difference between gross profit and selling, general and
administrative expenses. The key drivers of operating profit are net sales, gross profit, our ability to
control selling, general and administrative expenses and our level of capital expenditures affecting
depreciation expense. Operating profit may be utilized on a particular business unit or geographic
area in which we operate. We currently utilize operating profit for both North America and other
international operations.
27
•
•
•
•
•
•
Provide for the risk of zero annual short-term cash based incentives payout should minimum performance
expectations not be met.
Grant of awards that upon achievement of target performance measures, are in the best long-term interests
of the shareholders.
Provide for pay-at-risk, i.e., performance expectations that are challenging, but achievable.
Communicate proactively to all NEOs performance expectations in order to establish clear incentive for
achievement.
Provide for upside compensation potential results that are beyond Company expectations.
Set forth prudent limits, or caps, on upside potential to ensure no possibility of payouts that might be
judged by shareholders as unjustifiable or excessive.
For long-term pay-for-performance (long-term equity incentive), the compensation committee’s goal is to link
the ultimate compensation amounts realized by NEOs directly and exclusively to the Company’s long-term common
stock performance. To do so, the compensation committee makes use of stock-based awards for all NEOs (except as
noted, below, under the section heading “The Compensation Decision-making Process”).
The compensation committee has used, and intends to make use of, both gain-based stock awards (stock
options) and full-value stock awards (restricted stock). The compensation committee determines on an annual basis
for each NEO the total value of an award, based on a competitive range, that best reflects in the compensation
committee’s judgment both the individual’s long-term track record of success and potential for long-term value-
added future contributions.
Gain-based awards have widespread use and have upside potential that can be highly motivational. However,
the compensation committee: (i) is aware that gain-based awards have a different downside potential than that of
holding outright shares of stock; (ii) recognizes that the exclusive and substantial use of gain-based awards has been
historically noted by the investment community as a potential contributor to misguided or unacceptable decisions on
the part of executives in certain other companies; and, (iii) knows that historic accounting advantages for the use of
gain-based awards no longer exist. In addition, the compensation committee is aware of the executive compensation
trend among publicly-held companies to utilize less gain-based awards in favor of full-value awards such as
restricted stock. Therefore, the compensation committee continues to review and has deployed full-value restricted
stock awards to help offset and balance the disadvantages of gain-based awards for achieving pay-for-performance
and other compensation goals while retaining the advantages of gain-based awards. The mix of gain-based awards
and full-value awards is evaluated annually by the compensation committee and adjusted based on input from the
compensation consultant and the CEO, all in the context of the marketplace, our compensation philosophy, and what
the compensation committee believes is in the best interest of the shareholders and the NEOs. The compensation
committee also allows some deference to the CEO in the allocation between stock options and restricted stock, so
long as the total compensation charge to Zumiez is equal to what was approved by the compensation committee.
Executive Officer Continuity. Undesirable, unanticipated or untimely departure of an executive officer is a risk
to the Company that the compensation committee works to avoid. The risk stems from the potentially high costs of
recruiting, relocation, operational disruption, reduced morale, turnover ripple effects among staff, negative external
perceptions, reduced external confidence and lost intellectual capital.
The compensation committee encourages executive officer continuity by granting stock awards to an NEO
where the ultimate realization of value not only depends on stock price, but also on the NEO remaining with Zumiez
for many years. Accordingly, if a NEO were to depart from Zumiez then he or she could forfeit substantial amounts
of unrealized compensation.
28
Shareholder Mentality. We believe it is in the best interests of shareholders for our leaders to feel, think and
act like shareholders, and to have a “shareholder mentality” as they go about envisioning, planning for and executing
operations. The compensation committee seeks to cultivate NEOs with a shareholder mentality by having NEOs
receive, accumulate and maintain significant ownership positions in Zumiez through annual equity grants. We do
not believe it is necessary to establish share ownership or share holding requirements because historically the NEOs
on aggregate have held a substantial amount of equity and, from a cultural point of view, NEOs are empowered to
make decisions on their equity holdings taking into account their personal values, temperament, risk tolerance and
personal finances.
Within this concept, through equity awards granted over time, each of our NEOs has the ability to establish
and maintain a valuable ownership in Zumiez.
Summary of the Elements of NEO Compensation
The compensation committee utilizes five primary elements for compensating NEOs:
•
•
•
•
•
Base Salary
Non-Equity Incentive Plan Compensation (“short-term cash based incentives”)
Bonus
Stock Option Grants
Restricted Stock Grants
Total Pay Philosophy—Our “Total Pay” compensation philosophy is designed to recognize and reward the
contributions of all employees, including executives, in achieving our strategic goals and business objectives, while
aligning our compensation program with shareholder interests. We regularly assess our total pay package, and we
adjust it as appropriate to remain competitive and to enable us to attract and retain our NEOs. We believe our total
pay practices motivate our executives to build long-term shareholder value.
Base Salary is a pre-set fixed cash amount that is delivered regularly in equal portions through the year. Each
NEOs annual base salary rate is reviewed from time to time and at least annually by the compensation committee.
Outside of the CEO, the review is based on recommendations of the CEO.
Short-Term Cash Based Incentives are based on pre-set opportunities for cash awards to be paid after the end
of the year based on performance for the year. Actual payouts may be between zero and twice the target amount,
where the target amount is that established for each NEO by the compensation committee if target goals are
achieved.
Bonuses may be awarded from time to time in order to attract and retain key NEOs. These bonuses, when
awarded, are generally in addition to those earned from participating in short-term cash based incentives and are
considered in the executive’s total direct compensation. The intention is to pay such bonuses rarely and in modest
amounts if and only if other elements of the executive pay system do not respond to outstanding achievements
clearly pursued and delivered in the interests of shareholders.
Stock Option Grants are opportunities granted from time to time (usually annually or at the time of hiring) to
an NEO to purchase our common stock at some future time at a pre-established fixed price set at the time of grant.
This price is the actual market price of the stock at the time of grant. The right to exercise options in a particular
grant is accumulated over a number of years, and is subject to vesting based upon continued employment with us.
Restricted Stock Grants are awards of common voting shares of stock that are granted from time to time
(usually annually or at the time of hiring) to each NEO. The right to earn the stock is contingent upon continued
employment over a period of time.
The compensation committee views the elements of total direct compensation for NEOs as an integrated
package to achieve all of the compensation goals described in the immediately preceding section of this discussion.
29
Fiscal 2018 – A Review of This Past Year
The charts below show net sales, operating profit and diluted earnings per share (“diluted EPS”) on a GAAP
basis for fiscal 2018 and 2017 and the percentage change in fiscal 2018.
In fiscal 2018, we continued to see strong sales results and have now seen positive comparable sales for ten
consecutive quarters driven by key brands and fashion trends in the market, as well as our unique brand experience.
Our focus remains centered on the customer; including launching over 100 new brands during fiscal 2018 and each
of the preceding 5 years. Consistently providing our customers with new choices and uniqueness in our product
offering is essential to our success and provides us with growth drivers for the future. The full year comparable
sales for fiscal 2018 increased 5.6% on top of comparable sales growth of 5.9% in fiscal 2017. Total net sales
growth was 5.5%, despite the benefit of the 53rd week in the prior year. Operating margins increased from the prior
year due primarily to leverage of our occupancy costs, reduction in inventory shrinkage and product margin
improvements. We added 5 new stores in North America in fiscal 2018, which was down from 12 new stores added
in fiscal 2017, as we get closer to our target store count. During fiscal 2018 we also added 7 new Blue Tomato
stores in Europe and 1 new Fast Times store in Australia and continue to have meaningful expansion opportunities
in these areas.
As a leading lifestyle retailer, we continue to differentiate ourselves through our distinctive brand offering and
diverse product selection, as well as the unique customer experience across all of our platforms. We have made
investments over several years to integrate the digital and physical channels creating a seamless shopping experience
for our customer, which we believe is critical for our long-term financial performance. We are continuing to deliver
our online orders in North America from our stores, which has provided significant improvements in the speed of
delivery to our customers and the overall experience. In-store fulfillment is a key part of strategy that we believe
will drive long term market share by leveraging the strengths of our store sales team, providing better and faster
service to customers, improving product margins, providing additional selling opportunities, and utilizing one cost
structure to serve the customer.
We believe that by making these key investments over many years and looking at financial results over a
longer time horizon will provide a better long-term return for our investors; and since owned stock or stock based
awards are the material component of our NEOs compensation and wealth creation, we believe our compensation
structure aligns management’s and shareholders’ interests.
Due to our executive compensation programs emphasis on pay for performance and pay at risk, compensation
awarded to the NEOs for fiscal 2018 reflected Zumiez’ results. As shown below, for the named executive officers
as a group, excluding the Chairman and the CEO, pay at risk and performance-based pay for fiscal 2018 comprised
an average of approximately 62.0% and 35.0%, respectively, of the total compensation as shown in the Summary
Compensation Table. We have excluded our Chairman and CEO due to the difference in the compensation structure
for the Chairman and CEO, who beneficially own 9.0% and 11.9% of the Company as of March 27, 2019,
respectively, and have not received equity awards since before our initial public offering as discussed further under
the section heading, “The Compensation Decision-making Process.”
30
Fiscal 2019 – A Look at the Upcoming Year
We are entering 2019 with ten consecutive quarters of positive comparable sales growth behind us and strong
brand and fashion trends in the business. In 2019, our focus will be on continued execution of our core culture and
brand strategies as well as strategic investments centered on long-term quality growth. These investments will be
largely focused on enhancing the customer experience and creating operational efficiencies to drive operating
margin expansion. As we reach our targeted number of stores in North America, we expect that total store count
growth in fiscal 2019 in the region will continue to moderate. In Europe and Australia, however, we continue to
believe we have growth opportunities and we are planning 8 new stores in fiscal 2019, consistent with fiscal 2018.
In fiscal 2019, we expect our cost structure will grow at a slower rate than 2018, primarily tied to the
leveraging of our store costs and expense initiatives across the organization. We anticipate inventory levels per
square foot will grow roughly in-line with sales growth. Excluding any possible share buy-backs, we expect cash,
short-term investments and working capital to increase, and do not anticipate any new long-term borrowings during
the year. Long-term, we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing
on the changing consumer environment while managing our cost structure.
31
Base Salary
In March 2018, the compensation committee met and reviewed the evaluations of the NEOs and the overall
performance of the Company against three objective measures; (1) net sales growth, (2) product margin and (3)
operating profit. Based upon our performance in fiscal 2017 and the contributions of the NEOs towards achieving
these results, the following base salaries for fiscal 2018 were awarded:
Executive Officer
Thomas D. Campion, Chairman of the Board ..................................................
Richard M. Brooks, Chief Executive Officer and Director ..............................
Christopher C. Work, Chief Financial Officer..................................................
Troy R. Brown, President North America ........................................................
Chris K. Visser, Chief Legal Officer and Secretary..........................................
Adam C. Ellis, President International..............................................................
Fiscal 2018
Base Salary
(1)
$ 335,000
$ 715,000
$ 428,000
$ 515,000
$ 324,000
$ 402,000
Increase Over
Prior Fiscal
Year
0.0%
3.6%
14.7%
3.0%
4.9%
3.3%
(1) Reflects annualized base salary as of the fiscal year end. Refer to the Summary Compensation Table for actual
base salary paid in fiscal 2018.
The compensation committee sets executive base salaries at levels it believes are competitive based on each
individual executive’s role and responsibilities. The compensation committee reviews base salaries for executive
officers at the time of hire and thereafter on an annual basis. The compensation committee may also review base
salary at the time of promotion or other significant changes in responsibilities. Base salary changes also impact
target annual short-term cash based incentive amounts, and actual annual short-term cash based incentive payouts,
because they are based on a percentage of base salary. When reviewing each executive’s base salary, the
compensation committee considers the level of responsibility and complexity of the executive’s job, whether
individual performance in the prior year was particularly strong or weak, and the salaries paid for the same or
similar positions based on analysis of the competitive market. Consistent with the philosophy discussed previously,
our executive base salaries generally are set at less than the median (at the 40th percentile) for comparable positions
based on analysis of the competitive market.
Short-Term Cash Based Incentives
In March 2018, the compensation committee approved the terms of the fiscal 2018 short-term cash based
incentives. Our NEOs short-term cash based incentives are targeted at approximately 0.2% of consolidated budgeted
sales and 0.4% of consolidated budgeted sales at maximum payout. The short-term cash based incentives are
appropriate to provide for increased payouts due to the significant shareholder returns commonly generated by
above-target net sales, product margin and operating profit performance. The compensation committee has the
discretion under the plan to reduce the awards paid under the plan, but does not have discretion to increase payouts
that are based on achievement of the objective performance goals or make a payout based on the objective
performance goals if the first threshold targets are not achieved. All of our executives are subject to our Executive
Compensation Recovery Policy, which further mitigates excessive risk taking. No payouts are made until audited
financial results are received, reviewed and approved by the audit committee at our March meeting after our fiscal
year has ended.
32
For each of the following performance measures, net sales, product margin and operating profit, the
compensation committee established performance metrics for the NEOs. Performance metrics were established for
North America operations and other international, consisting of Europe and Australia operations, for net sales,
product margin and operating profit. The performance metrics on a consolidated basis were established for operating
profit. These performance measures exclude the impact of changes in the foreign exchange rate, additional valuation
allowances beyond those in the budgeted plan and does not include any share repurchases in the dilutive share count.
Performance metrics for North America and other international operations are tightly managed and to the extent that
overall shareholder return is still met, the Compensation Committee is allowed to make certain adjustments for
strategic items not planned that negatively impact short-term growth expectations, but contribute to long-term
growth expectations of the business unit. The first threshold relates to a minimum acceptable level of financial
performance. The second threshold is intended to be the target performance. If the minimum acceptable level is
achieved for any given metric, the incentives are calculated on a sliding scale culminating in the top threshold,
which is designed as a stretch challenge. The compensation committee believes these goals are not easily achieved
and, in the fourteen years since becoming a public company, no NEO has achieved all of the stretch challenge
measurement goals. The compensation committee used different performance measures for different NEOs. These
are noted in the following tables which show the performance thresholds for each performance measure used for
fiscal 2018:
Objective Measure
1
Performance Metrics - Consolidated
4
3
2
Target
5
Net sales growth - North America ...........................
Net sales growth - Other international .....................
Product margin improvement - North America .......
0.8%
22.1%
2.2%
23.2%
3.9%
25.6%
4.6%
26.8%
5.4%
28.0%
Last year plus
Last year plus
Last year plus
Last year plus
Last year plus
0.00%
0.05%
0.21%
0.29%
0.37%
Product margin improvement – Other
international .............................................................
Operating profit improvement - North America ......
Operating profit improvement – Other
international .............................................................
Operating profit improvement - Global ...................
Last year plus
Last year plus
Last year plus
Last year plus
Last year plus
1.58%
2.5%
71.0%
3.4%
2.02%
6.7%
81.8%
10.0%
2.22%
13.2%
2.31%
16.2%
94.3%
19.6%
100.4%
24.1%
2.41%
19.3%
106.5%
28.7%
The following table represents the percentage of the respective NEOs base salary that will be earned upon
achievement of the performance thresholds (“Threshold Percentage”):
Executive Officer
Thomas D. Campion, Chairman of the Board ............................................ 33% 65% 98% 114% 130%
63% 125% 188% 219% 250%
Richard M. Brooks, Chief Executive Officer and Director ........................
Christopher C. Work, Chief Financial Officer ........................................... 30% 60% 90% 105% 120%
30% 60% 90% 105% 120%
Troy R. Brown, President North America ..................................................
25% 50% 75% 88% 100%
Chris K. Visser, Chief Legal Officer and Secretary ...................................
5% 10% 55% 78% 100%
Adam C. Ellis, President International .......................................................
1
5
Performance Threshold
4
3
2
33
The threshold percentages in the table above are multiplied by the percentages in the following table for each
performance threshold achieved (“Objective Measure Weighting Percentage”). The compensation committee
weights each threshold for each of the NEOs based upon that individual’s ability to impact the measure. The
objective measures are weighted between North America and other international performance thresholds based on
fiscal 2018 budgeted sales results, with exception of the President North America and President International, whose
objective measures are weighted higher for North America operations and other international operations,
respectively.
Executive Officer
Thomas D. Campion, Chairman of the Board ..................................
Richard M. Brooks, Chief Executive Officer and
Director.............................................................................................
Christopher C. Work, Chief Financial Officer .................................
Troy R. Brown, President North America........................................
Chris K. Visser, Chief Legal Officer and Secretary .........................
Adam C. Ellis, President International .............................................
Objective Measure
North
America
Net Sales
Other
Inter-
national
Net Sales
North
America
Product
Margin
Other
Inter-
national
Product
Margin
North
America
Operating
Profit
Other
Inter-
national
Operating
Profit
Consolidated
Operating
Profit
26 %
4 %
26 %
4 %
n/a
26 %
26 %
24 %
26 %
6 %
4 %
4 %
6 %
4 %
24 %
26 %
26 %
24 %
30 %
6 %
4 %
4 %
6 %
4 %
24 %
n/a
n/a
32 %
n/a
8 %
n/a
n/a
n/a
8 %
n/a
32 %
40 %
40 %
40 %
n/a
40 %
n/a
Therefore, for each performance threshold achieved, the calculation of the short-term cash based incentive
earned is as follows:
Base Salary ($) x Threshold Percentage x Objective Measure Weighting Percentage
During fiscal 2018, we exceeded the level four threshold for North America net sales, met level two for North
America product margin, and achieved the top threshold for North America operating profit. We exceeded the level
four threshold for global operating margin. We exceeded the level two threshold for other international product
margin and did not achieve any of the other international thresholds for net sales or operating profit. The short-term
cash based incentives target and compensation paid to the NEOs for fiscal 2018 are as follows:
Executive Officer
$
Thomas D. Campion, Chairman of the Board........................................
$
Richard M. Brooks, Chief Executive Officer and Director....................
$
Christopher C. Work, Chief Financial Officer .......................................
$
Troy R. Brown, President North America..............................................
Chris K. Visser, Chief Legal Officer and Secretary...............................
$
Adam C. Ellis, President International................................................... $
Short-Term
Cash Based
Incentive
Compensation
Target
217,750
893,750
256,800
309,000
162,000
201,000
Short-Term
Cash Based
Incentive
Compensation
Paid
335,250
1,376,025
395,371
452,192
249,417
162,855
$
$
$
$
$
$
Bonus
While we continue to execute growth strategies and invest for the future, the compensation committee
recognizes the uncertain economic environment that has the potential to negatively impact virtually every industry
including consumer discretionary spending businesses such as ours. The compensation committee recognizes that in
some circumstances it may be advisable to establish and pay discretionary bonuses in order to reward NEOs for
managing the business during difficult economic conditions. For example, in a situation where at the beginning of a
fiscal year there was believed to be a wide range of possible financial outcomes, this variability may make it
difficult to set targets for short-term cash based incentives. Accordingly, at the end of the fiscal year the
compensation committee retains the discretion to award a bonus if the NEOs were able to achieve meaningful results
during the fiscal year by managing the business, such as in the following ways:
•
Cash and marketable securities position at year-end versus plan and prior year.
• Working capital versus plan and prior year.
•
Capital spending versus plan and prior year.
34
•
•
Operating income performance for the year versus plan and the prior year.
The current year’s performance relative to driving long-term value creation.
We may also award discretionary cash bonuses from time to time in order to attract and retain key NEOs.
The intention is to pay such bonuses rarely and in modest amounts if and only if other elements of the
executive pay system do not respond to outstanding achievements clearly pursued and delivered in the interests of
our shareholders.
Long-Term Equity Incentives
The compensation committee uses long-term equity incentives as a significant component of total
compensation consistent with the culture and compensation philosophy. The compensation committee continues to
believe in the importance of equity compensation for all executive officers and issues equity incentives broadly
through the management population.
Additionally, because we do not have a pension or a supplemental executive retirement plan, we believe our
executives should plan for their retirement substantially through potential wealth accumulation from equity gains.
Long-term equity incentive awards are determined through a combination of the Company’s performance,
execution of our total compensation strategy of rewarding executives and providing a foundation for wealth
building. Our stock option awards generally have a ten-year term and typically vest 25% per year. Our restricted
stock awards generally vest 33% per year.
The compensation committee met in March 2018 and considered the performance of the Company, its overall
compensation strategy and the level of equity grants to align the NEOs with shareholders. Based on the
compensation committee’s deliberations, the following equity incentive awards were granted:
Executive Officer
Thomas D. Campion, Chairman of the Board ........................................
Richard M. Brooks, Chief Executive Officer and Director ....................
Christopher C. Work, Chief Financial Officer .......................................
Troy R. Brown, President North America ..............................................
Chris K. Visser, Chief Legal Officer and Secretary ...............................
Adam C. Ellis, President International ...................................................
Restricted
Stock Grants
Stock Option
Grants
—
—
5,341
12,820
5,341
—
—
—
10,794
25,906
10,794
—
Furthermore, the compensation committee met in June 2018 to review and discuss additional one-time equity
incentive grants for the President North America and the President International. In recognition of the contributions
of the two Presidents and the progress to date in their new respective roles, the respective future potential of these
two Presidents, and in support of retention and succession planning efforts and the importance of promoting internal
candidates, the compensation committee agreed to award equity incentives to the Presidents in the amount of
$600,000 for the President North America and $250,000 for the President International. The aforementioned grants
were made on June 15, 2018 in the form of a grant of 23,255 shares of restricted stock for the President North
America and in the form of a grant of 9,689 restricted stock units for the President International. Both such grants
provide for a 5 year vesting schedule weighted more heavily in later years as follows: 20% vesting on the 3rd
anniversary of the date of grant, 40% vesting on the 4th anniversary of the date of grant, and 40% on the 5th
anniversary of the date of grant.
The compensation committee believes the levels of grants are appropriate, consistent with its compensation
strategy and provide a meaningful alignment of the NEOs with the Company’s shareholders.
Equity Grant Timing Practices. All stock options granted at Zumiez have an exercise price equal to the
closing market price of our stock on the grant date. Regular annual grants for employees are approved at the March
compensation committee and board meetings, and the grant date for such annual grants is generally the second
35
business day after the public release of fiscal year-end earnings. The grants are approved as formulas based on a
specified dollar amount and approved dilution percentages; the number of shares and exercise price for each option
grant are determined based on the closing market price of our stock on the grant date, and the number of shares for
each restricted stock grant is determined by dividing the dollar amount by the closing market price of our stock on
the grant date. The board gives the CEO the ability to grant a small number of equity awards for the current fiscal
year at the March board meeting for new hires and promotions.
Who is Involved in Compensation Decisions for NEOs
The role of the compensation committee—The compensation committee oversees and governs the
compensation of the NEOs. The compensation committee is currently composed of four independent outside
directors. Its top priority is aligning the interests of the NEOs with those of shareholders and motivating them in the
most effective manner possible to create maximum long-term shareholder value. The compensation committee’s
responsibilities are to:
•
•
•
•
•
•
•
•
•
Establish and articulate the philosophy, rationale and strategy for compensating all NEOs.
Approve and oversee group and individual compensation plans designed to fulfill our philosophy and
strategy.
Develop, recommend and justify to the board all compensation decisions and actions for the CEO.
Review and approve all compensation decisions and actions for other NEOs.
Review and approve any up-front performance measures, goals, standards, weightings and formulas that
may be used to determine future conditional awards for NEOs.
Ensure the ongoing success of our compensation program for NEOs by seeking, pursuing, evaluating and
implementing improvements.
Review total compensation compared to compensation opportunities and practices in the competitive
market for executive talent.
Evaluate the enterprise risk associated with all forms of compensation.
Appoint, determine the funding for, and oversee the independent compensation consultant.
The role of NEOs—The NEOs, and in particular the CEO, provide and explain information requested by the
compensation committee and are present at compensation committee meetings as requested by the compensation
committee. The NEOs are not present during deliberations or determination of their respective compensation. On
behalf of the compensation committee, the CEO has the following specific responsibilities:
•
•
•
•
Develop, recommend and justify, to the compensation committee, compensation decisions and actions for
NEOs other than the CEO.
Develop, recommend and justify, to the compensation committee, any up-front performance measures,
goals, standards, weightings and formulas that may be used to determine future conditional awards for the
compensation program for NEOs.
Report, to the compensation committee, experiences with the compensation program for NEOs and
present any perceived opportunities for improvement.
Communicate appropriate information about the compensation committee’s actions and decisions to the
other NEOs.
The role of external advisors—At the compensation committee’s discretion, it may engage and consult with
external advisors as it determines necessary to assist in the execution of its duties. External advisors have the
following responsibilities:
•
Provide research, analysis and expert opinions, on an as-requested basis, to assist the compensation
committee in education, deliberations and decision-making.
• Maintain independence from our management.
36
•
Interact with members of management only with the approval of the chair of the compensation
committee.
All external advisors are engaged directly by the compensation committee and independently of the
management of the Company.
The compensation committee periodically engages a compensation consultant to work with the compensation
committee on its compensation deliberations. During fiscal 2018, the compensation committee asked Meridian
Compensation Partners, as the independent consultation to the committee, to provide an assessment of compensation
levels and advise the compensation committee on compensation strategies based on a market analysis taking into
account recruiting goals, and retaining and motivating talent to build shareholder value. The compensation
committee and the Company believe the compensation consultant is independent of Zumiez and our management.
Our Chief Legal Officer and Secretary also supports the compensation committee in its work.
The Compensation Decision-making Process
The compensation committee gathers together information to help it assess compensation for the NEOs,
including:
•
•
•
•
•
Tally sheets—We use tally sheets for each of the NEOs to summarize the significant components of
compensation, including base salary, short-term cash based incentives, bonuses, and equity incentives.
The tally sheets are compared to targeted total compensation.
Competitive compensation analysis—At the compensation committee’s direction, the compensation
consultant developed and delivered analysis of competitive compensation for each NEO position. The
focus was on a representative benchmarking peer group to reflect the competitive market for executive
talent. The benchmarking peer group was developed using industry, revenue and retail segment screening
criteria to identify the peer group, which included Abercrombie & Fitch, American Eagle Outfitters,
Buckle, Build-A-Bear Workshop, Cato Corp, Citi Trends, Destination XL Group, Five Below,
Francesca’s, Lands' End, RTW Retailwinds, Inc., Tilly's, Urban Outfitters, and Vera Bradley. Analysis
was performed using publicly-available information on executive pay levels compiled from the most
recently available proxy statements of publicly-held companies. The compensation consultant provided
expert opinions and conclusions to the compensation committee about targets for base salary, short-term
cash based incentives and long-term equity incentives for our NEO roles. The committee used this
information to ensure that our stated philosophy and strategy for aligning executive compensation
opportunities with the competitive market has been and continues to be fulfilled.
Fiscal 2018 results—The compensation committee has access to fiscal 2018 operating plans and budgets
as approved by the board of directors in March 2018. Management updates the compensation committee
and the board on actual performance compared to budgets and summarizes for the compensation
committee how the Company and the NEOs performed against the performance targets.
Fiscal 2019 operating and financial plans—The compensation committee also receives the operating plan
and budgets for fiscal 2019 as approved by the Company’s board of directors. The compensation
committee uses this information to help establish performance targets for the upcoming fiscal year.
Audited results—The compensation committee reviews the final audited results to confirm that
performance targets were achieved. No incentive awards are made until audited results are received by the
board.
37
•
•
Performance of peer retailers—The compensation committee requests that management prepare a
schedule comparing our performance, including comparable sales growth, operating income and earnings
per share, for the last five fiscal years to the above stated peer group. All of the information for these
retailers was summarized from publicly available data. The compensation committee compares our
relative performance as an additional data point understanding that all of these companies are larger and
may have significantly different business models with significantly different growth profiles.
Evaluations—The compensation committee receives a self-evaluation and confidential upward
evaluations of the CEO and summary evaluations of the remaining NEOs. The compensation committee
chair solicits the full membership of the board for feedback on the CEO’s performance and prepares the
CEO’s annual evaluation for review by the full compensation committee.
The compensation committee thoroughly and systematically reviews and discusses all information submitted.
It asks management to clarify and supplement as appropriate. The committee then works with its consultant to
determine fair and competitive compensation awards and opportunities for each of the NEOs.
The compensation committee currently structures the NEO compensation program to:
•
•
•
Provide conservative (40th percentile) base salary opportunities against the Company’s competitive
market for executive compensation talent.
Establish average (50th percentile) total cash compensation opportunities (base salary, bonus and Short-
Term Cash Based Incentives) against the competitive market.
Provide long-term equity-based awards at the 50th percentile when compared to competitive practices for
comparable roles. In the case of our Chairman and our CEO who beneficially own 9.0% and 11.9% of
the Company, respectively, the compensation committee has concluded that each executive owns a
sufficient amount of equity to align them with the long-term interests of shareholders. Because of this,
neither our Chairman nor our CEO has received equity grants since before the Company’s initial public
offering.
The compensation committee evaluates this approach to total direct compensation on an annual basis to best
maintain alignment of the interests of NEO’s with the long-term economic interests of shareholders, given the
maturity, complexity and size of the business. Included is a thorough review of the approach to the Chairman and
CEO, where the committee reserves the right to provide additional equity-based awards to the incumbents if it
determines doing so is in the best interests of shareholders and/or is needed to best reflect competitive practices.
During its deliberations, the compensation committee also considers:
•
•
Long-term wealth accumulation—the accumulated wealth from previous equity incentives granted to
each NEO.
Internal pay equity—the relationship between the compensation of our CEO and the other NEOs, as well
as staff at-large.
There is discretion inherent in the compensation committee’s role of establishing compensation for the NEOs.
The compensation committee has attempted to minimize discretion by focusing on the three objective financial
measures it considers to be the long-term drivers of the Company’s business: net sales, product margin and
operating profit. These performance measures have historically been used to determine the short-term cash based
incentives and are also key considerations in determining changes to base salary and long-term equity incentive
awards. Some discretion is used by the compensation committee in evaluating the qualitative performance of the
NEOs in determining base salary adjustments and payment of discretionary bonuses. Some discretion is also used in
the granting of long-term equity incentive awards to help NEOs build wealth through ownership of Zumiez stock.
However, in all of these uses of discretion the compensation committee is also governed by the overall
compensation philosophy; and, is guided by explicit competitive targets and ranges of reasonableness.
38
In making its final decisions, the committee works to ensure that all outcomes are thoroughly justifiable and
defensible as well as fair and effective from all critical perspectives: those of the full board, shareholders, objective
external experts and the NEOs themselves.
Advisory Vote on Executive Compensation. The shareholders of the Company are provided the opportunity to
provide an advisory vote on the Company’s executive compensation every three years. At the last such vote in May
of 2017 the shareholders of the Company approved the Company’s executive compensation in an advisory vote with
98.8% of the votes being cast in favor of the Company’s executive compensation. The compensation committee
viewed this vote as strong support for its executive compensation decisions and policies and, accordingly, it did not
consider making changes to its executive compensation decisions and policies in response to the 2017 advisory
shareholder vote.
Enterprise Risk and Compensation
The compensation committee considers all facets of the NEOs compensation structure and believes it
appropriately balances the drive for financial results and risks to the Company. The compensation committee aligns
executive compensation with shareholder interests by placing a majority of total compensation “at risk,” and
increasing the amount of pay that is “at risk” as the executives achieve higher levels of performance. “At risk”
means the executive will not realize value unless performance goals are attained. The short-term incentives are tied
to easily measureable financial metrics that the compensation committee believes are consistent, transparent and
drive shareholder value; that is, net sales, product margin and operating profit. The majority of the long-term based
compensation vests over several years and is not tied to specific financial metrics. By combining annual cash
incentives tied to short-term financial performance along with the majority of the NEOs long-term wealth creation
tied to stock performance, the compensation committee believes an appropriate balance exists between rewarding
performance without excessive risk taking. In addition the compensation committee believes the short-term
incentives in place that are tied to financial performance do not provide excessive risk to the Company as they are
capped at no more than 250% of base pay for our CEO, 130% for our Chairman of the Board, 120% for our Chief
Financial Officer, 120% for our President North America, 100% for our Chief Legal Officer and Secretary and
100% for our President International. The compensation committee believes that the overall executive
compensation policy contains less than a ‘reasonable likelihood’ of material risk.
Employment Agreements
None of our U.S. employees have an employment agreement and all U.S. employees are “at will.”
Tax and Accounting Implications
Accounting Treatment. We recognize a charge to earnings for accounting purposes for equity awards over
their vesting period. We expect that the compensation committee will continue to review and consider the
accounting impact of equity awards in addition to considering the impact for dilution and overhand when deciding
on amounts and terms of equity grants.
Deductibility of Executive Compensation. In December 2017, the U.S. Tax Cuts and Jobs Act (“tax act”)
generally eliminated the exception for qualified performance-based compensation under Section 162(m) of the
Internal Revenue Code for years beginning on or after January 1, 2018. For fiscal periods prior to fiscal 2018, the
compensation committee believed that it was generally in the Company’s best interests to comply with
Section 162(m) and expected that most of the compensation paid to the named executives would either be under the
$1.0 million limit, eligible for exclusion (such as stock options) under the $1.0 million limit, or based on qualified
performance objectives. However, notwithstanding this general policy, the compensation committee also believed
that there may be circumstances in which the Company’s interests are best served by maintaining flexibility in the
way compensation is provided, whether or not compensation is fully deductible under Section 162.
39
At our 2014 annual meeting of shareholders, the Company’s shareholders approved the material terms of the
performance criteria that are utilized in our short-term cash based incentive awards and other awards that may be
made in the future pursuant to the terms of the 2014 Equity Incentive Plan. As a result of the tax act, these short-
term cash based incentive awards (discussed earlier in the Compensation Discussion and Analysis) are generally no
longer eligible for exclusion under the Section 162(m) $1.0 million limit for fiscal years beginning after January 1,
2018. Despite the changes to Section 162(m) and consistent with our executive compensation philosophy, the
compensation committee intends to continue to structure the executive compensation with an emphasis on pay-for-
performance and pay-at-risk.
Taxation of Parachute Payments and Deferred Compensation. We do not provide and have no obligation to
provide any executive officer, including any NEO, with a “gross-up” or other reimbursement payment for any tax
liability that he or she might owe as a result of the application of Section 280G, 4999, or 409A of the Code.
Sections 280G and 4999 of the Code provide that executive officers and directors who hold significant equity
interests and certain other service providers may be subject to an excise tax if they receive payments or benefits in
connection with a change in control that exceed certain limits prescribed by the Code, and that the employer may
forfeit a deduction on the amounts subject to this additional tax. Section 409A of the Code also may impose
significant taxes on a service provider in the event that he or she receives deferred compensation that does not
comply with the requirements of Code Section 409A. We have structured our compensation arrangements with the
intention of complying with or otherwise being exempt from the requirements of Code Section 409A. Our 2014
Equity Incentive Plan provides that it shall be interpreted and administered to the extent necessary to comply with or
effectuate an exemption from the requirements of Code Section 409A.
Advisory Vote on Executive Compensation
We provided the Company’s shareholders with the opportunity to vote to approve, on an advisory, non-
binding basis, the compensation of our named executive officers at our 2017 annual meeting of shareholders. As
noted above under the section heading “The Compensation Decision-making Process”. The result of the prior
advisory shareholder vote at our 2017 annual meeting of shareholders was 98.8% of votes cast approved the
compensation of our named executive officers.
Additionally, at our 2017 annual meeting of shareholders, we provided the Company’s shareholders with the
opportunity to indicate their preference on how frequently we should seek an advisory vote on the compensation of
our named executive officers, with the option for every “1 Year,” every “2 Years,” or every “3 Years.” The result of
this advisory vote at our 2017 annual meeting of shareholders was 66.0% of votes cast were in favor of an advisory
vote on executive compensation every three years. Based on the board of directors’ recommendation for a
frequency of three years and the voting results with respect to the frequency of future advisory votes on executive
compensation, the board of directors determined that it would include in the annual shareholder meeting proxy
materials a shareholder vote on executive compensation every three years until the next required vote on frequency
of advisory votes on executive compensation, which we are providing the opportunity to vote on at our 2023 Annual
Meeting of Shareholders. As an advisory vote on executive compensation occurred at the 2017 Annual Meeting of
the Shareholders, the next advisory vote on executive compensation will occur at the 2020 Annual Meeting of the
Shareholders.
CEO/Median Employee Pay Ratio
We believe in delivering quality employment experiences at all levels within the Company. In that regard,
every year we create thousands of career opportunities for individuals who are just beginning their professional
careers and who are driven to develop new skills in an environment centered around teaching and learning. Many of
these opportunities are provided to our part-time sales associates, who on average are approximately 19 years of age,
and are often furthering their career through concurrent education and/or additional employment opportunities.
40
The median employee was identified by calculating fiscal year taxable income for each of our 9,052 employed
individuals, excluding our CEO, on February 2, 2019. All employees located in North America and Europe were
included in the calculation. A de minimis number of non-U.S. employees, of approximately 70 located in Australia,
were excluded. Additionally, Canadian dollars and Euros were converted to U.S. dollars using the applicable
exchange rates on the date listed above. To help assure an accurate representation of the median employee, earnings
for regular employees employed for less than one year were annualized based on their individual average earnings to
date.
For fiscal 2018, we identified our median employee to be a part-time Sales Associate in one of our U.S. stores,
whose annual compensation was $7,557. As stated in the “Total” column in the Summary Compensation Table, our
CEO’s total compensation for fiscal 2018 was $2,100,004. As a result, we estimate our CEO to median employee
pay ratio to be 278:1.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Smith, Hyde, Weber, and Ms. Holmes and Ms. McCoy served as members of the compensation
committee during fiscal 2018. Ms. McCoy joined the compensation committee effective as of June 6, 2018 at which
time Mr. Weber discontinued being a member of the compensation committee. No member of the compensation
committee was at any time during fiscal 2018 or at any other time an officer or employee of Zumiez, and no member
had any relationship with Zumiez requiring disclosure as a related-person in the section “Certain Relationships and
Related Transactions.” No executive officer of Zumiez has served on the board of directors or compensation
committee of any other entity that has or has had one or more executive officers who served as a member of our
board of directors or compensation committee during fiscal 2018.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The compensation committee of the Company has reviewed and discussed the Compensation Discussion and
Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion,
the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis
be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
Travis D. Smith, Chairperson
Kalen F. Holmes
Matthew L. Hyde
Sarah (Sally) G. McCoy
The compensation committee report does not constitute soliciting material, and shall not be deemed to be filed or
incorporated by reference into any other filing under the Securities Act of 1933, or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates the compensation committee report by
reference therein.
41
Summary Compensation Table
The following table shows all compensation for fiscal 2018, 2017 and 2016 awarded to, earned by, or paid to
our CEO, our CFO and our other named executive officers.
Salary Bonus
Name and Principal Position
($) (2)
Thomas D. Campion................. 2018 335,033 —
Chairman of the Board ........ 2017 341,476 —
2016 335,033 —
Year
($) (1)
Richard M. Brooks ................... 2018 714,521 —
Chief Executive Officer ...... 2017 703,371 —
and Director......................... 2016 690,100 —
Stock
Awards
($) (3)
—
—
—
—
—
—
Option
Awards
($) (4)
Non-Equity
Incentive Plan
Compensation
($) (5)
335,250
322,932
—
—
—
—
— 1,376,025
— 1,023,446
—
—
Christopher C. Work................. 2018 426,942 — 124,979 124,995
Chief Financial Officer ....... 2017 376,327 — 104,996 104,998
2016 272,692 50,000 104,981 104,994
Troy R. Brown.......................... 2018 514,712 — 899,967 299,991
President North America..... 2017 505,769 — 249,995 249,995
2016 400,000 50,000 249,993 249,999
Chris K. Visser ......................... 2018 323,712 — 124,979 124,995
Chief Legal Officer ............. 2017 313,875 — 108,483 108,494
and Secretary....................... 2016 280,933 50,000 104,981 104,994
395,371
331,904
—
452,192
466,320
—
249,417
229,130
—
All Other
Compensation
($) (6)
Total
($)
9,790 680,073
8,007 672,415
7,660 342,693
9,458 2,100,004
7,946 1,734,763
7,482 697,582
8,666 1,080,953
5,314 923,539
4,947 537,614
7,139 2,174,001
7,734 1,479,813
6,735 956,727
6,886 829,989
5,382 765,364
5,013 545,921
Adam C. Ellis ........................... 2018 400,500 — 249,976
—
President International ........ 2017 397,755 —
—
—
162,855
76,279
277,306 (7) 1,090,637
131,671 (7) 605,705
(1) This column represents the base salary earned during fiscal 2018, 2017 and 2016. We use a fiscal calendar
consisting of a 52- or 53-week period ending on the Saturday closest to January 31 with an extra week added to
the fourth quarter every five or six years. Fiscal 2018 and 2016 were 52-week fiscal years. Fiscal 2017 was a
53-week fiscal year and therefore includes an additional week of base salary.
(2) This column represents the bonus compensation awarded to the NEOs during fiscal 2018, 2017 and 2016 and
paid in early fiscal 2019, 2018 and 2017. For additional information on the amount related to bonus
compensation, see the previous discussion in the Compensation Discussion and Analysis entitled “Bonus”.
(3) This column represents the aggregate grant-date fair value of restricted stock awards calculated in accordance
with FASB ASC Topic 718, excluding the impact of estimated forfeitures related to service based vesting
conditions. For assumptions used in determining these values, please see Note 2 (listed under Stock-Based
Compensation) in the Notes to Consolidated Financial Statements in our fiscal 2018, 2017 and 2016 Form 10-
K. Information regarding the restricted stock awards granted to the NEOs during fiscal 2018 is set forth in the
Grants of Plan-Based Awards Table on a grant-by-grant basis.
(4) This column represents the aggregate grant-date fair value of stock option awards calculated in accordance with
FASB ASC Topic 718, excluding the impact of estimated forfeitures related to service based vesting conditions.
For assumptions used in determining these values, please see Note 2 (listed under Stock-Based Compensation)
in the Notes to Consolidated Financial Statements in our fiscal 2018, 2017 and 2016 Form 10-K. Information
regarding the stock option awards granted to our NEOs during 2018 is set forth in the Grants of Plan-Based
Awards Table on a grant-by-grant basis.
42
(5) The amounts set forth in this column were earned during fiscal 2018, 2017 and 2016 and paid in early fiscal
2019, 2018 and 2017 respectively, to each of the NEOs under our executive Short-Term Cash Based Incentives.
For additional information on the determination of the amounts related to Non-Equity Incentive Plan
Compensation, see the previous discussion in the Compensation Discussion and Analysis entitled, “Short-Term
Cash Based Incentives.” Information regarding the threshold, target and maximum estimated future payouts
under non-equity incentive plan awards is set forth in the Grants of Plan-Based Awards Table.
(6) All other compensation includes 401(k) employer match contributions and company paid life insurance
premiums.
(7) In fiscal 2017, Mr. Ellis relocated to Austria at our request and received international assignment-related
benefits, including housing-related expenses and tax equalization. In fiscal 2018, he received $102,954 in
housing-related benefits, $15,094 in other assignment-related costs, and $159,258 in tax equalization payments.
In fiscal 2017, he received $34,393 in housing-related benefits and $91,954 in tax equalization payments. The
tax-equalization payments are intended to place Mr. Ellis in a similar net tax position as a similarly
compensated employee in the United States.
43
Grants of Plan-Based Awards
The following table provides information about equity and non-equity awards granted to the NEOs in fiscal
2018. In the columns described as Estimated Future Payouts Under Non-Equity Incentive Plan Awards, this table
quantifies potential awards under the executive short-term cash based incentives plan discussed previously.
Estimated Future Payouts Under
Non-Equity
Incentive Plan Awards (1)
Target
($)
217,750
Maximum
($)
435,500
Threshold
($)
108,875
All Other
Stock
Awards:
Number of
Shares of
Stock
or Units (#)
(2)
All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
(3)
Exercise or
Base Price
of Option
Awards ($)
(4)
Grant Date
Fair Value
of Stock
and Option
Awards ($)
(5)
Name
Thomas D. Campion ............................
Chairman of the Board
Grant Date
Richard M. Brooks ..............................
446,875
893,750
1,787,500
Chief Executive Officer and
Director
Christopher C. Work ...........................
Chief Financial Officer..................
Troy R. Brown...............................
President North America .........
128,400
256,800
513,600
3/19/2018
3/19/2018
5,341
10,794
124,979
23.40 124,995
154,500
309,000
618,000
3/19/2018
3/19/2018
6/15/2018
12,820
23,255
25,906
299,988
23.40 299,991
599,979
Chris K. Visser ..............................
81,000
162,000
324,000
Chief Legal Officer and
Secretary ..................................
3/19/2018
3/19/2018
5,341
10,794
124,979
23.40 124,995
Adam C. Ellis ................................
President International .............
100,500
201,000
402,000
6/15/2018
9,689
249,976
(1) These columns show what the potential payout for each NEO was under the executive short-term cash based
incentives for fiscal 2018 if the threshold, target or maximum goals were satisfied for all performance measures.
Please refer to the discussion in the Compensation Discussion and Analysis entitled, “Short-Term Cash Based
Incentives” and the Summary Compensation Table for amounts earned by the NEOs in fiscal 2018.
(2) This column shows the number of shares of restricted stock granted in fiscal 2018 to the NEOs. The restricted
stock awards vest over a three-year period in equal annual installments beginning on the first anniversary date
of the grant. Please refer to the discussion in the Compensation Discussion and Analysis entitled, “Long-Term
Equity Incentives.” Information on the aggregate grant-date fair value of restricted stock awards is set forth in
the Summary Compensation Table.
(3) This column shows the number of stock options granted in fiscal 2018 to the NEOs. These stock options vest
over a four-year period in equal annual installments beginning on the first anniversary date of the grant. Please
refer to the discussion in the Compensation Discussion and Analysis entitled, “Long-Term Equity Incentives.”
Information on the aggregate grant-date fair value of stock option awards is set forth in the Summary
Compensation Table.
(4) This column shows the exercise price for the stock options granted, which was the closing price of the
Company’s stock on the grant date indicated.
44
(5) This column represents the aggregate grant-date fair value of restricted stock and stock option awards calculated
in accordance with FASB ASC Topic 718, excluding the impact of estimated forfeitures related to service based
vesting conditions. For assumptions used in determining these values, please see Note 2 (listed under Stock-
Based Compensation) in the Notes to Consolidated Financial Statements in our fiscal 2018 Form 10-K. These
amounts reflect the Company’s accounting expense for these stock option and restricted stock awards to be
recognized over the vesting period of the grants, and do not correspond to the actual value that will be
recognized by the NEO.
45
Outstanding Equity Awards at Fiscal Year-End
The following table provides information on the holdings of stock option awards and restricted stock awards
for the NEOs at February 2, 2019. This table includes unexercised and unvested stock options and restricted stock
awards. The vesting schedule for each grant of stock options and restricted stock awards is shown in the footnotes to
this table. The market value of the restricted stock awards is based on the closing market price of our stock on
February 2, 2019, which was $25.14.
Option Awards
Stock Awards
Name
Thomas D. Campion ..............................................................
Chairman of the Board
Richard M. Brooks .................................................................
Chief Executive Officer and Director
Christopher C. Work ..............................................................
Chief Financial Officer....................................................
Troy R. Brown........................................................................
President North America .................................................
Chris K. Visser .......................................................................
Chief Legal Officer and Secretary...................................
Adam C. Ellis .........................................................................
President International.....................................................
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
—
—
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
Options
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of Stock
That Have Not
Vested
(#)
—
—
—
—
—
—
—
—
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($)
—
—
— 28.30 9/15/2022
— 24.81 3/18/2023
— 25.49 3/17/2024
752 38.57 3/16/2025
5,544 19.70 3/14/2026
8,919 17.70 3/13/2027
10,794 23.40 3/19/2028
—
—
—
—
—
—
—
—
—
— 25.31 3/14/2021
— 34.57 3/12/2022
— 24.81 3/18/2023
— 25.49 3/17/2024
2,228 38.57 3/16/2025
13,200 19.70 3/14/2026
21,234 17.70 3/13/2027
25,906 23.40 3/19/2028
—
—
—
—
—
—
—
—
—
—
—
—
— 27.00 10/15/2022
— 24.81 3/18/2023
- 25.49 3/17/2024
815 38.57 3/16/2025
5,544 19.70 3/14/2026
9,216 17.70 3/13/2027
10,794 23.40 3/19/2028
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44,674
1,777 (8)
3,955 (9)
99,429
5,341 (10) 134,273
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,231 (8) 106,367
9,417 (9) 236,743
12,820 (10) 322,295
23,255 (13) 584,631
—
—
—
—
—
—
—
—
—
—
—
—
1,777 (8)
44,674
4,087 (9) 102,747
—
—
—
5,341 (10) 134,273
791 38.57 3/16/2025
5,544 19.70 3/14/2026
—
—
—
—
—
—
—
—
—
—
—
—
—
1,777 (8)
44,674
24,476 (15) 615,327
9,686 (16) 243,506
13,066 (1)
3,610 (2)
4,095 (3)
2,259 (4)
5,543 (5)
2,972 (6)
— (7)
—
—
—
4,970 (11)
6,152 (12)
9,662 (2)
13,106 (3)
6,687 (4)
13,199 (5)
7,078 (6)
— (7)
—
—
—
—
9,152 (14)
3,610 (2)
4,095 (3)
2,454 (4)
5,543 (5)
3,071 (6)
— (7)
—
—
—
2,379 (4)
5,543 (5)
—
—
—
46
(1) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was September 15, 2012.
(2) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 18, 2013.
(3) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 17, 2014.
(4) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 16, 2015.
(5) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 14, 2016.
(6) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 13, 2017.
(7) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 19, 2018.
(8) This restricted stock grant vest over a three-year period in equal annual installments beginning on the grant date
anniversary. The grant date was March 14, 2016.
(9) This restricted stock grant vest over a three-year period in equal annual installments beginning on the grant date
anniversary. The grant date was March 13, 2017.
(10) This restricted stock grant vest over a three-year period in equal annual installments beginning on the grant date
anniversary. The grant date was March 19, 2018.
(11) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 14, 2011.
(12) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was March 12, 2012.
(13) This restricted stock grant vest over a five-year period in varying annual installments beginning on the second
grant date anniversary. The grant date was June 15, 2018.
(14) Options subject to this grant vest over a four-year period in equal annual installments beginning on the one-year
anniversary of the grant date. The grant date was October 15, 2012.
(15) Options subject to this grant vest over a six-year period in varying annual installments beginning on the one-
year anniversary of the grant date. The grant date was December 27, 2016.
(16) This restricted stock units grant vest over a five-year period in varying annual installments beginning on the
second grant date anniversary. The grant date was June 15, 2018.
47
Option Exercises and Stock Vested
The following table provides information for the NEOs on stock option exercises and on the vesting of other
stock awards during fiscal 2018, including the number of shares acquired upon exercise or vesting and the value
released before payment of any applicable withholding taxes and broker commissions.
Name
Thomas D. Campion ................................................
Chairman of the Board
Richard M. Brooks...................................................
Chief Executive Officer and Director
Christopher C. Work................................................
Chief Financial Officer
Troy R. Brown .........................................................
President North America
Chris K. Visser.........................................................
Chief Legal Officer and Secretary
Adam C. Ellis...........................................................
President International
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise
(#)
Valued Realized on
Exercise (1)
($)
Number of Shares
Acquired on
Vesting
(#)
Value Realized
on Vesting (2)
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
4,540
91,742
—
11,269
228,585
—
4,673
94,545
—
11,515
228,503
(1) The dollar amount realized upon exercise was calculated by determining the difference between the market
price of the underlying shares of common stock at exercise and the exercise price of the stock options.
(2) The dollar amount realized upon vesting was calculated by applying the market price of the restricted stock
shares on the vesting dates.
The Company does not maintain a defined benefit pension plan or supplemental pension plan.
Pension Benefits
The Company does not maintain a nonqualified deferred compensation plan.
Nonqualified Deferred Compensation
48
Potential Payments Upon Termination or Change in Control
Certain of the NEOs have unvested stock options and awards of restricted stock under the Company’s 2014
Equity Incentive Plan, the vesting of which may accelerate in the event of a Change in Control (as defined below).
The Company does not maintain a severance or separation plan, or any such individual plans, for its executive
officers. Accordingly, except as described below, there are no agreements, arrangements or plans that entitle the
Company’s executive officers to enhanced benefits upon termination of their employment. The information below
is a summary of certain provisions of these agreements and does not attempt to describe all aspects of the
agreements. The rights of the parties are governed by the actual agreements and are in no way modified by the
abbreviated summaries set forth in this proxy statement.
Double-Trigger Acceleration of Stock Award Vesting
The Company’s 2014 Equity Incentive Plan has a double-trigger acceleration which provides that in the event
of a Change in Control we do not accelerate vesting of awards that are assumed or replaced by the resulting entity
after a change in control unless an employee employment is also terminated by the Company without cause or by the
employee with good reason within one year of the change in control.
For purposes of the 2014 Equity Incentive Plan, “Change in Control” means:
(i)
the consummation of a merger or consolidation of the Company with or into another entity or any other
corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving
entity’s securities outstanding immediately after such merger, consolidation or other reorganization is
owned by persons who were not shareholders of the Company immediately prior to such merger,
consolidation or other reorganization; or
(ii) the sale, transfer or other disposition of all or substantially all of the Company’s assets.
A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the
Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by
the persons who held the Company’s securities immediately before such transaction.
The following table shows the potential payments the NEOs could have received under these arrangements in
connection with a Change in Control on February 2, 2019.
Change in Control
with Double Trigger Acceleration
Executive Officer
Thomas D. Campion
Chairman of the Board .................................................................................... $
Richard M. Brooks,
Chief Executive Officer and Director ............................................................. $
Christopher C. Work
Chief Financial Officer.................................................................................... $
Troy R. Brown
President North America ................................................................................. $
Chris K. Visser
Chief Legal Officer and Secretary................................................................... $
Adam C. Ellis
President International..................................................................................... $
Stock Option Vesting
in Connection with a
Change in Control (1)
Restricted Stock
Vesting in Connection
with a Change in
Control (2)
— $
— $
—
—
115,298 $
278,375
274,865 $
1,250,036
117,508 $
30,159 $
281,694
903,582
49
(1) Represents the amount calculated by multiplying the number of in-the-money unvested options with respect to
which the vesting would accelerate as a result of Change in Control under the circumstances of a double trigger
acceleration as defined in the 2014 Equity Incentive Plan noted by the difference between the exercise price and
the closing price of a share of common stock on the last trading day of fiscal 2018. The number of shares
subject to unvested stock options and exercise prices thereof are shown previously in the Outstanding Equity
Awards at Fiscal Year-End table.
(2) Represents the amount of unvested restricted stocks awarded with respect to which the vesting would accelerate
as a result of a Change in Control under the circumstances of a double trigger acceleration as defined in the
2014 Equity Incentive Plan noted by the number of restricted stock shares unvested at the closing price of a
share of common stock on the last trading day of fiscal 2018.
50
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company’s equity compensation plans at February
2, 2019:
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
Number of
securities
remaining
available for
future issuance
under equity
compensation plans
2,421,788
23.06
Plan Category
Equity compensation plans approved by security holders (1).......
Equity compensation plans not approved by security
holders (2)......................................................................................
Employee stock purchase plans approved by security
holders (3)......................................................................................
314,905 $
—
—
—
—
—
197,062
(1) Equity compensation plans approved by shareholders include the 2005 Equity Incentive Plan and the 2014
Equity Incentive Plan.
(2) The Company does not have any equity compensation plans that were not approved by the Company’s
shareholders.
(3) Employee stock purchase plans approved by shareholders include the 2014 Employee Stock Purchase Plan.
51
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The audit committee operates under a written charter adopted by the Company’s board of directors. The
charter of the audit committee is available at http://ir.zumiez.com.
We have reviewed and discussed with management our consolidated financial statements as of and for the
fiscal year ended February 2, 2019.
We have reviewed and discussed with management and the independent auditor management’s assessment of
the effectiveness of the Company’s internal control over financial reporting and the independent auditor’s opinion
about the effectiveness of the Company’s internal control over financial reporting.
We have discussed with the independent auditor the matters required to be discussed by Public Company
Accounting Oversight Board (PCAOB) Auditing Standard No. 16 (Communication with Audit Committees).
We have received and reviewed the written disclosures and the letter from our independent auditor required by
applicable requirements of the PCAOB regarding the independent auditor’s communications with the audit
committee concerning independence, and have discussed with the independent auditor their independence.
Based on the reviews and discussions referred to previously, we recommended to our board of directors that
the financial statements referred to previously be included in our Annual Report on Form 10-K.
THE AUDIT COMMITTEE
Ernest R. Johnson, Chairman
Sarah (Sally) G. McCoy
Travis D. Smith
Matthew L. Hyde
The audit committee report does not constitute soliciting material, and shall not be deemed to be filed or
incorporated by reference into any other filing under the Securities Act of 1933, or the Securities Exchange Act of
1934, except to the extent that the Company specifically incorporates the audit committee report by reference
therein.
52
Fees Paid to Independent Registered Public Accounting Firm for Fiscal 2018 and 2017
The aggregate fees billed by Moss Adams LLP for professional services rendered for fiscal 2018 and fiscal
2017, are as follows:
Audit fees (1) ..............................................................
Audit-related fees (2)..................................................
Total fees ....................................................................
Fiscal 2018 Fiscal 2017
$ 494,400 $ 496,344
16,000
$ 510,400 $ 512,344
16,000
(1) Audit fees include services and costs in connection with the audit of the consolidated annual financial
statements of the Company and reviews of the interim condensed consolidated financial statements included in
the Company’s quarterly reports.
(2) Audit-related fees include services and costs in connection with the audit of the Company’s 401K plan.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent
Registered Public Accounting Firm
The audit committee pre-approves all auditing services, internal control-related services and permitted non-
audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor,
subject to the “de minimis exception” (discussed below) for non-audit services that are approved by the audit
committee prior to the completion of the audit. The audit committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals
of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall
be presented to the full audit committee at its next scheduled meeting. The audit committee will evaluate whether
any permitted non-audit services are compatible with maintaining the auditor’s independence.
As discussed previously, all services of the auditor must be pre-approved by the audit committee except for
certain services other than audit, review or attest services that meet the “de minimis exception” under 17 CFR
Section 210.2-01, namely:
•
•
•
the aggregate amount of fees paid for all such services is not more than 5% of the total fees paid by the
Company to its auditor during the fiscal year in which the services are provided;
such services were not recognized by the Company at the time of the engagement to be non-audit
services; and
such services are promptly brought to the attention of the audit committee and approved prior to the
completion of the audit.
During fiscal 2018 and 2017, there were no services that were performed pursuant to the “de minimis
exception.”
53
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL 2
Upon the recommendation of the audit committee, the board of directors has reappointed Moss Adams LLP to
audit our consolidated financial statements for the fiscal year ending February 1, 2020 (“fiscal 2019”). Moss Adams
LLP has served as our independent registered public accounting firm since 2006. A representative from Moss
Adams LLP will be at the meeting to answer any questions that may arise.
If the shareholders do not ratify the selection of Moss Adams LLP as our independent registered public
accounting firm for fiscal 2018, our board of directors will evaluate what would be in the best interests of our
Company and our shareholders and consider whether to select a new independent registered public accounting firm
for the current fiscal year or whether to wait until the completion of the audit for the current fiscal year before
changing our independent registered public accounting firm.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ITS SELECTION OF MOSS ADAMS
LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2019
54
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers, banks and other agents) to
satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders
sharing the same address by delivering a single proxy statement addressed to those shareholders. This process,
which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost
savings for companies.
A number of brokers, banks or other agents with account holders who are shareholders of Zumiez will be
“householding” our proxy materials. A single proxy statement will be delivered to multiple shareholders sharing an
address unless contrary instructions have been received from the affected shareholders. Once you have received
notice from your broker, bank or other agent that it will be “householding” communications to your address,
“householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual
report, please notify your broker, bank or other agent, and direct a written request for the separate proxy statement
and annual report to Secretary, Zumiez Inc., 4001 204th Street SW, Lynnwood, Washington 98036. Shareholders
whose shares are held by their broker, bank or other agent as nominee and who currently receive multiple copies of
the proxy statement at their address that would like to request “householding” of their communications should
contact their broker, bank or other agent.
PROPOSALS OF SHAREHOLDERS
We expect to hold our next annual meeting on or about June 3, 2020. If you wish to submit a proposal for
inclusion in the proxy materials for that meeting, you must send the proposal to our Secretary at the address below.
The proposal must be received at our executive offices no later than December 26, 2019, to be considered for
inclusion. Among other requirements set forth in the SEC’s proxy rules, you must have continuously held at least
$2,000 in market value or 1% of our outstanding stock for at least one year by the date of submitting the proposal,
and you must continue to own such stock through the date of the meeting.
If you intend to nominate candidates for election as directors or present a proposal at the meeting without
including it in our proxy materials, you must provide notice of such proposal to us no later than February 4, 2020,
and not before January 5, 2020. Our bylaws outline procedures for giving the required notice. If you would like a
copy of the procedures contained in our bylaws, please contact:
Secretary
Zumiez Inc.
4001 204th Street SW
Lynnwood, Washington 98036
55
OTHER MATTERS
Our board of directors knows of no other matters that will be presented for consideration at the annual
meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Chris K. Visser
Chief Legal Officer and Secretary
Lynnwood, Washington
April 26, 2019
A copy of our Annual Report on Form 10-K for the fiscal year ended February 2, 2019 filed with the
SEC is available without charge upon written request to: Secretary, Zumiez Inc., 4001 204th Street SW,
Lynnwood, Washington 98036.
56
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: February 2, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-51300
ZUMIEZ INC.
(Exact name of Registrant as specified in its charter)
Washington
(State or other jurisdiction of
incorporation or organization)
4001 204th Street SW
Lynnwood, Washington
(Address of principal executive offices)
91-1040022
(IRS Employer
Identification No.)
98036
(Zip Code)
(425) 551-1500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common Stock
Name of each exchange on which registered: The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant
was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
☒
☐
☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:31)
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of the last business day of the
second fiscal quarter, August 3, 2018, was $456,572,006. At March 11, 2019, there were 25,520,923 shares outstanding of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report is incorporated by reference from the Registrant’s definitive proxy statement, relating
to the Annual Meeting of Shareholders scheduled to be held June 5, 2019, which definitive proxy statement will be filed not later than
120 days after the end of the fiscal year to which this report relates.
ZUMIEZ INC.
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business...........................................................................................................................................
Item 1A. Risk Factors .....................................................................................................................................
Item 1B. Unresolved Staff Comments............................................................................................................
Properties.........................................................................................................................................
Item 2.
Legal Proceedings ...........................................................................................................................
Item 3.
Mine Safety Disclosures..................................................................................................................
Item 4.
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities ....................................................................................................................
Selected Financial Data ...................................................................................................................
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .........
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................................................
Financial Statements and Supplementary Data ...............................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .........
Item 9A. Controls and Procedures..................................................................................................................
Item 9B. Other Information............................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..............................................................
Executive Compensation .................................................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Item 12.
Item 13.
Item 14.
Matters ........................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence................................
Principal Accountant Fees and Services..........................................................................................
Exhibits, Financial Statement Schedules.........................................................................................
Item 15.
Signatures ..........................................................................................................................................................
PART IV
3
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25
27
39
40
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73
ZUMIEZ INC.
FORM 10-K
PART I.
This Form 10-K contains forward-looking statements. These statements relate to our expectations for future
events and future financial performance. Generally, the words “anticipates,” “expects,” “intends,” “may,” “should,”
“plans,” “believes,” “predicts,” “potential,” “continue” and similar expressions identify forward-looking statements.
Forward-looking statements involve risks and uncertainties, and future events and circumstances could differ
significantly from those anticipated in the forward-looking statements. These statements are only predictions.
Actual events or results may differ materially. Factors which could affect our financial results are described in
Item 1A below and in Item 7 of Part II of this Form 10-K. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy
and completeness of the forward-looking statements. We undertake no duty to update any of the forward-looking
statements after the date of this report to conform such statements to actual results or to changes in our expectations.
We use a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of a 52- or
53-week period ending on the Saturday closest to January 31. Each fiscal year consists of four 13-week quarters,
with an extra week added to the fourth quarter every five or six years. Fiscal 2019 will be the 52 week period
ending February 1, 2020. Fiscal 2018 was the 52 week period ending February 2, 2019. Fiscal 2017 was the 53
week period ending February 3, 2018. Fiscal 2016 was the 52 week period ending January 28, 2017. Fiscal 2015
was the 52 week period ending January 30, 2016. Fiscal 2014 was the 52 week period ending January 31, 2015.
“Zumiez,” the “Company,” “we,” “us,” “its,” “our” and similar references refer to Zumiez Inc. and its
wholly-owned subsidiaries.
Item 1.
BUSINESS
Zumiez Inc., including its wholly-owned subsidiaries, is a leading specialty retailer of apparel, footwear,
accessories and hardgoods for young men and women who want to express their individuality through the fashion,
music, art and culture of action sports, streetwear and other unique lifestyles. Zumiez Inc. was formed in August
1978 and is a Washington State corporation.
At February 2, 2019, we operated 707 stores; 608 in the United States (“U.S.”), 50 in Canada, 41 in Europe
and 8 in Australia. We operate under the names Zumiez, Blue Tomato and Fast Times. Additionally, we operate
ecommerce websites at zumiez.com, zumiez.ca, blue-tomato.com and fasttimes.com.au.
We acquired Blue Tomato during fiscal 2012. Blue Tomato is one of the leading European specialty retailers
of apparel, footwear, accessories and hardgoods. We acquired Fast Times Skateboarding (“Fast Times”) during
fiscal 2016. Fast Times is an Australian specialty retailer of skateboards, hardware, apparel and footwear.
We employ a sales strategy that integrates our stores with our ecommerce platform to serve our customers.
There is significant interaction between our store sales and our ecommerce sales channels and we believe that they
are utilized in tandem by our customers. Our selling platforms bring the look and feel of an independent specialty
shop through a distinctive store environment and high-energy sales personnel. We seek to staff our stores with store
associates who are knowledgeable users of our products, which we believe provides our customers with enhanced
customer service and supplements our ability to identify and react quickly to emerging trends and fashions. We
design our selling platforms to appeal to teenagers and young adults and to serve as a destination for our customers.
We believe that our distinctive selling platforms concepts and compelling economics will provide continued
opportunities for growth in both new and existing markets.
3
We believe that our customers desire authentic merchandise and fashion that is rooted in the fashion, music,
art and culture of action sports, streetwear and other unique lifestyles to express their individuality. We strive to
keep our merchandising mix fresh by continuously introducing new brands, styles and categories of product. Our
focus on a diverse collection of brands allows us to quickly adjust to changing fashion trends. We believe that our
strategic mix of apparel, footwear, accessories and hardgoods, including skateboards, snowboards, bindings,
components and other equipment, allows us to strengthen the potential of the brands we sell and helps to affirm our
credibility with our customers. In addition, we supplement our merchandise mix with a select offering of private
label apparel and products as a value proposition that we believe complements our overall merchandise selection.
Over our 40-year history, we have developed a corporate culture based on a passion for serving our customers
through the lens of action sports, streetwear and other unique lifestyles. We have increased our store count from 551
as of the end of fiscal 2013 to 707 as of the end of fiscal 2018, representing a compound annual growth rate of 5.1%;
increased net sales from $724.3 million in fiscal 2013 to $978.6 million in fiscal 2018, representing a compound
annual growth rate of 6.2%; and been profitable in every fiscal year of our 40-year history.
Competitive Strengths
We believe that the following competitive strengths differentiate us from our competitors and are critical to
our continuing success.
Attractive Lifestyle Retailing Concept. We target a large population of young men and women, many of
whom we believe are attracted to action sports, streetwear and other unique lifestyles and desire to express their
personal independence and style through the apparel, footwear and accessories they wear and the equipment they
use. We believe we have developed a brand image that our customers view as consistent with their attitudes, fashion
tastes and identity that should allow us to benefit and differentiates us in our market.
Differentiated Merchandising Strategy. We have created a highly differentiated retailing concept by offering
an extensive selection of current and relevant lifestyle brands encompassing apparel, footwear, accessories and
hardgoods. The breadth of merchandise offered through our sales channels exceeds that offered by many of our
competitors and includes some brands and products that are available only from us. Many of our customers desire
to update their wardrobes and equipment as fashion trends evolve or the season dictates, providing us the
opportunity to shift our merchandise selection seasonally. We believe that our ability to quickly recognize changing
brand and style preferences and transition our merchandise offerings allows us to continually provide a compelling
offering to our customers.
Deep-rooted Culture. We believe our culture and brand image enable us to successfully attract and retain high
quality employees who are passionate and knowledgeable about the products we sell. We place great emphasis on
customer service and satisfaction, and we have made this a defining feature of our corporate culture. To preserve
our culture, we strive to promote from within and we provide our employees with the knowledge and tools to
succeed through our comprehensive training programs and the empowerment to manage their stores to meet
localized customer demand.
Distinctive Customer Experience. We strive to provide a convenient shopping environment that is appealing
and clearly communicates our distinct brand image. We seek to integrate our store and digital shopping experiences
to serve our customers whenever, wherever and however they choose to engage with us. We seek to attract
knowledgeable sale associates who identify with our brand and are able to offer superior customer service, advice
and product expertise. We believe that our distinctive shopping experience enhances our image as a leading source
for apparel and equipment for action sports, streetwear and other unique lifestyles.
4
Disciplined Operating Philosophy. We have an experienced senior management team. Our management
team has built a strong operating foundation based on sound retail principles that underlie our unique culture. Our
philosophy emphasizes an integrated combination of results measurement, training and incentive programs, all
designed to drive sales productivity to the individual store associate level. Our comprehensive training programs are
designed to provide our employees with the knowledge and tools to develop leadership, communication, sales, and
operational expertise. We believe that our merchandising team immersion in the lifestyles we represent,
supplemented with feedback from our customers, store associates, and omni-channel leadership, allows us to
consistently identify and react to emerging fashion trends. We believe that this, combined with our inventory
planning and allocation processes and systems, helps us better manage markdown and fashion risk.
High-Impact, Integrated Marketing Approach. We seek to build relationships with our customers through a
multi-faceted marketing approach that is designed to integrate our brand images with the lifestyles we represent.
Our marketing efforts focus on reaching our customers in their environment and feature extensive grassroots
marketing events, as well as the Zumiez STASH loyalty program. Our marketing efforts incorporate local sporting
and music event promotions, interactive contest sponsorships that actively involve our customers with our brands
and products and various social network channels. Events and activities such as these provide opportunities for our
customers to develop a strong identity with our culture and brands. Our STASH loyalty program allows us to learn
more about our customer and serve their needs better. We believe that our ability to interact with our customer
through STASH, and our immersion in the lifestyles we represent, allows us to build credibility with our customers
and gather valuable feedback on evolving customer preferences.
Growth Strategy
We intend to expand our presence as a leading specialty retailer of action sports, streetwear, and other unique
lifestyles by:
Continuing to Generate Sales Growth through Existing Channels. We seek to maximize our comparable sales
by continuing to integrate our store and online shopping experiences and offering our customers a broad and
relevant selection of brands and products, including a unique customer experience through each interaction with our
brand.
Enhancing our Brand Awareness through Continued Marketing and Promotion. We believe that a key
component of our success is the brand exposure that we receive from our marketing events, promotions, and
activities that embody the unique lifestyles of our customers. These are designed to assist us in increasing brand
awareness in our existing markets and expanding into new markets by strengthening our connection with our target
customer base. We also use our STASH loyalty program to increase brand engagement and enhance brand
creditability. We believe that our marketing efforts have also been successful in generating and promoting interest in
our product offerings. In addition, we use our ecommerce presence to further increase our brand awareness. We
plan to continue to expand our integrated marketing efforts by promoting more events and activities in our existing
and new markets. We also benefit from branded vendors’ marketing.
Opening or Acquiring New Store Locations. We believe our brand has appeal that provides select store
expansion opportunities throughout the U.S. and Canada, as well as greater ability to expand in Europe and
Australia. During the last three fiscal years, we have opened or acquired 65 new stores consisting of 13 stores in
fiscal 2018, 19 stores in fiscal 2017 and 33 stores in fiscal 2016. We have successfully opened or acquired stores in
diverse markets throughout the U.S. and internationally, which we believe demonstrates the portability and growth
potential of our concepts. To take advantage of what we believe to be a compelling economic store model, we plan
to open approximately 13 new stores in fiscal 2019, including stores in our existing markets and in new markets
internationally. The number of anticipated store openings may increase or decrease due to market conditions and
other factors.
5
Merchandising and Purchasing
Our goal is to be viewed by our customers as the definitive source of merchandise for their unique lifestyles
across all channels in which we operate. We believe that the breadth of merchandise that we offer our customers,
which includes apparel, footwear, accessories, and hardgoods, exceeds that offered by many other specialty stores at
a single location, and makes us a single-stop purchase destination for our target customers.
We seek to identify fashion trends as they develop and to respond in a timely manner with a relevant product
assortment. We strive to keep our merchandising mix fresh by continuously introducing new brands or styles in
response to the evolving desires of our customers. Our merchandise mix may vary by region, country and season,
reflecting the preferences and seasons in each market.
We believe that offering an extensive selection of current and relevant brands in sports, fashion, music and art
is integral to our overall success. No single third-party brand that we carry accounted for more than 12.4%, 8.5%
and 7.3% of our net sales in fiscal 2018, 2017 and 2016. We believe that our strategic mix of apparel, footwear,
accessories and hardgoods allows us to strengthen the potential of the brands we sell and affirms our credibility with
our customers.
We believe that our ability to maintain an image consistent with the unique lifestyles of our customers is
important to our key vendors. Given our scale and market position, we believe that many of our key vendors view
us as an important retail partner. This position helps ensure our ability to procure a relevant product assortment and
quickly respond to the changing fashion interests of our customers. Additionally, we believe we are presented with
a greater variety of products and styles by some of our vendors, as well as certain specially designed items that we
exclusively distribute. We supplement our merchandise assortment with a select offering of private label products
across many of our product categories. Our private label products complement the branded products we sell, and
some of our private label brands allow us to cater to the more value-oriented customer. For fiscal 2018, 2017 and
2016, our private label merchandise represented 13.1%, 16.8% and 20.2% of our net sales.
We have developed a disciplined approach to buying and a dynamic inventory planning and allocation process
to support our merchandise strategy. We utilize a broad vendor base that allows us to shift our merchandise
purchases as required to react quickly to changing consumer demands and market conditions. We manage the
purchasing and allocation process by reviewing branded merchandise lines from new and existing vendors,
identifying emerging fashion trends and selecting branded merchandise styles in quantities, colors and sizes to meet
inventory levels established by management. We coordinate inventory levels in connection with individual stores’
sales strength, our promotions and seasonality. We utilize a localized fulfillment strategy to fulfill the majority of
our ecommerce orders through our stores to reduce shipping time and enhance customer experience.
Our merchandising staff remains in tune with the fashion, music, art and culture of action sports, streetwear
and other unique lifestyles by participating in action sports, attending relevant events and concerts, watching related
programming and reading relevant publications and social network channels. In order to identify evolving trends
and fashion preferences, our staff spends considerable time analyzing sales data, gathering feedback from our stores
and customers, shopping in key markets and soliciting input from our vendors.
We source our private label merchandise from primarily foreign manufacturers around the world. We have
cultivated our private label sources with a view towards high quality merchandise, production reliability and
consistency of fit. We believe that our knowledge of fabric and production costs combined with a flexible sourcing
base enables us to source high-quality private label goods at favorable costs.
6
Stores
Store Locations. At February 2, 2019, we operated 707 stores in the following locations:
United States and Puerto Rico - 608 Stores
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
4 Indiana
3 Iowa
12 Kansas
3 Kentucky
90 Louisiana
19 Maine
9 Maryland
4 Massachusetts
35 Michigan
13 Minnesota
7 Mississippi
6 Missouri
19 Montana
10 Nebraska
4 New Hampshire
3 New Jersey
4 New Mexico
6 New York
3 Nevada
11 North Carolina
11 North Dakota
13 Ohio
11 Oklahoma
4 Oregon
7 Pennsylvania
5 Puerto Rico
3 Rhode Island
6 South Carolina
19 South Dakota
5 Tennessee
33 Texas
9 Utah
13 Vermont
4 Virginia
13 Washington
6 West Virginia
13 Wisconsin
22 Wyoming
5
2
4
2
9
51
14
1
14
26
2
14
2
Canada - 50 Stores
Alberta
British Columbia
Manitoba
8 New Brunswick
11 Nova Scotia
2 Ontario
1 Saskatchewan
2
24
2
Europe - 41 Stores
Austria
Germany
Switzerland
Netherlands
Australia - 8 Stores
Victoria
Queensland
South Australia
14
19
7
1
6
1
1
The following table shows the number of stores (excluding temporary stores that we operate from time to time
for special or seasonal events) opened, acquired and closed in each of our last three fiscal years:
Fiscal Year
2018
2017
2016
Stores
Opened
13
19
28
Stores
Acquired
—
—
5
Stores
Closed
4
6
6
Total Number of
Stores End of Year
707
698
685
Store Design and Environment. We design our stores to create a distinctive and engaging shopping
environment that we believe resonates with our customers. Our stores feature an industrial look, dense merchandise
displays, lifestyle focused posters and signage and popular music, all of which are consistent with the look and feel
of an independent specialty shop. Our stores are designed to encourage our customers to shop for longer periods of
time, to interact with each other and our store associates and to visit our stores more frequently. Our stores are
constructed and finished to allow us to efficiently shift merchandise displays throughout the year as the season
dictates. At February 2, 2019, our stores averaged approximately 2,931 square feet. All references in this Annual
Report on Form 10-K to square footage of our stores refers to gross square footage, including retail selling, storage
and back-office space.
7
Expansion Opportunities and Site Selection. In selecting a location for a new store, we target high-traffic
locations with suitable demographics and favorable lease terms. We generally locate our stores in areas in which
other teen and young adult-oriented retailers have performed well. We focus on evaluating the market specific
competitive environment for potential new store locations. We seek to diversify our store locations regionally and
by caliber of mall or shopping area. For mall locations, we seek locations near busy areas of the mall such as food
courts, movie theaters, game stores and other popular teen and young adult retailers.
Store Management, Operations and Training. We believe that our success is dependent in part on our ability
to attract, train, retain and motivate qualified employees at all levels of our organization. We have developed a
corporate culture that we believe empowers the individual store managers to make store-level business decisions and
consistently rewards their success. We are committed to improving the skills and careers of our workforce and
providing advancement opportunities for employees.
We believe we provide our managers with the knowledge and tools to succeed through our comprehensive
training programs and the flexibility to manage their stores to meet customer demands. While general guidelines for
our merchandise assortments, store layouts and in-store visuals are provided by our home offices, we give our
managers substantial discretion to tailor their stores to the individual market and empower them to make store-level
business decisions. We design group training programs for our managers to improve both operational expertise and
supervisory skills.
Our store associates generally have an interest in the fashion, music, art and culture of the action sports
lifestyle and are knowledgeable about our products. Through our training, evaluation and incentive programs, we
seek to enhance the productivity of our store associates. These programs are designed to promote a competitive, yet
fun, culture that is consistent with the unique lifestyles we seek to promote.
Marketing and Advertising
We seek to reach our target customer audience through a multi-faceted marketing approach that is designed to
integrate our brand image with the lifestyles we represent. Our marketing efforts focus on reaching our customers in
their environment, and feature extensive grassroots marketing events, which give our customers an opportunity to
experience and participate in the lifestyles we offer. Our grassroots marketing events are built around the
demographics of our customer base and offer an opportunity for our customers to develop a strong identity with our
brands and culture.
We have a customer loyalty program, the Zumiez STASH, which allows members to earn points for purchases
or performance of certain activities. The points can be redeemed for a broad range of rewards, including product
and experiential rewards. Our marketing efforts also incorporate local sporting and music event promotions,
advertising in magazines popular with our target market, interactive contest sponsorships that actively involve our
customers with our brands and products, the Zumiez STASH, catalogs and various social network channels. We
believe that our immersion in action sports, streetwear and other unique lifestyles allows us to build credibility with
our target audience and gather valuable feedback on evolving customer preferences.
Distribution and Fulfillment
Timely and efficient distribution of merchandise to our stores is an important component of our overall
business strategy. Domestically, our distribution center is located in Corona, California. At this facility,
merchandise is inspected, allocated to stores and distributed to our stores and customers. Each store is typically
shipped merchandise five times a week, providing our stores with a steady flow of new merchandise. We utilize a
localized fulfillment strategy in which we use our domestic store network to provide fulfillment services for the vast
majority of online customer purchases.
Internationally, we operate a distribution center located in Delta, British Columbia, Canada to distribute
merchandise to our Canadian stores. We operate a distribution and ecommerce fulfillment center located in Graz,
Austria that supports our Blue Tomato operations in Europe. We also operate a distribution and ecommerce
fulfillment center located in Melbourne, Australia to support our Fast Times operations in Australia.
8
Management Information Systems
Our management information systems provide integration of store, online, merchandising, distribution,
financial and human resources functions. The systems include applications related to point-of-sale, inventory
management, supply chain, planning, sourcing, merchandising and financial reporting. We continue to invest in
technology to align these systems with our business requirements and to support our continuing growth.
Competition
The teenage and young adult retail apparel, hardgoods, footwear and accessories industry is highly
competitive. We compete with other retailers for vendors, customers, suitable store locations and qualified store
associates, management personnel, online marketing content, social media engagement and ecommerce traffic. In
the softgoods market, which includes apparel, footwear and accessories, we currently compete with other teenage
and young adult focused retailers. In addition, in the softgoods market we compete with independent specialty
shops, department stores, vendors that sell their products directly to the retail market, non-mall retailers and
ecommerce retailers. In the hardgoods market, which includes skateboards, snowboards, bindings, components and
other equipment, we compete directly or indirectly with the following categories of companies: other specialty
retailers, such as local snowboard and skate shops, large-format sporting goods stores and chains, vendors who sell
their products directly to the retail market and ecommerce retailers.
Competition in our sector is based on, among other things, merchandise offerings, store location, price, and
the ability to identify with the customer. We believe that our ability to compete favorably with our competitors is
due to our differentiated merchandising strategy, compelling store environment and deep-rooted culture.
Seasonality
Historically, our operations have been seasonal, with the largest portion of net sales and net income occurring
in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and winter holiday
selling seasons. During fiscal 2018, approximately 57% of our net sales occurred in the third and fourth quarters
combined. As a result of this seasonality, any factors negatively affecting us during the last half of the year,
including unfavorable economic conditions, adverse weather or our ability to acquire seasonal merchandise
inventory, could have a material adverse effect on our financial condition and results of operations for the entire
year. Our quarterly results of operations may also fluctuate based upon such factors as the timing of certain holiday
seasons, the popularity of seasonal merchandise offered, the timing and amount of markdowns, competitive
influences and the number and timing of new store openings, remodels and closings.
Trademarks
The “Zumiez”, “Blue Tomato” and “Fast Times” trademarks and certain other trademarks, have been
registered, or are the subject of pending trademark applications, with the U.S. Patent and Trademark Office and with
the registries of certain foreign countries. We regard our trademarks as valuable and intend to maintain such marks
and any related registrations and vigorously protect our trademarks. We also own numerous domain names, which
have been registered with the Corporation for Assigned Names and Numbers.
Employees
At February 2, 2019, we employed approximately 2,500 full-time and approximately 6,600 part-time
employees globally. However, the number of part-time employees fluctuates depending on our seasonal needs and
generally increases during peak selling seasons, particularly the back-to-school and the winter holiday seasons.
None of our employees are represented by a labor union and we believe that our relationship with our employees is
positive.
9
Financial Information about Segments
See Note 17, “Segment Reporting,” in the Notes to Consolidated Financial Statements found in Part IV Item
15 of this Form 10-K, for information regarding our segments, product categories and certain geographical
information.
Available Information
Our principal website address is www.zumiez.com. We make available, free of charge, our proxy statement,
annual report to shareholders, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission (“SEC”) at http://ir.zumiez.com. Information
available on our website is not incorporated by reference in, and is not deemed a part of, this Form 10-K. The SEC
maintains a website that contains electronic filings by Zumiez and other issuers at www.sec.gov. In addition, the
public may read and copy any materials Zumiez files with the SEC at the SEC’s Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330.
10
Item 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. The following risk factors, issues and uncertainties should
be considered in evaluating our future prospects. In particular, keep these risk factors in mind when you read
“forward-looking” statements elsewhere in this report. Forward-looking statements relate to our expectations for
future events and time periods. Generally, the words “anticipates,” “expects,” “intends,” “may,” “should,”
“plans,” “believes,” “predicts,” “potential,” “continue” and similar expressions identify forward-looking
statements. Forward-looking statements involve risks and uncertainties, and future events and circumstances could
differ significantly from those anticipated in the forward-looking statements. Any of the following risks could harm
our business, operating results or financial condition and could result in a complete loss of your investment.
Additional risks and uncertainties that are not yet identified or that we currently think are immaterial may also
harm our business and financial condition in the future.
Failure to anticipate, identify and respond to changing fashion trends, customer preferences and other fashion-
related factors could have a material adverse effect on us.
Customer tastes and fashion trends in our market are volatile and tend to change rapidly. Our success depends on
our ability to effectively anticipate, identify and respond to changing fashion tastes and consumer preferences, and
to translate market trends into appropriate, saleable product offerings in a timely manner. If we are unable to
successfully anticipate, identify or respond to changing styles or trends and misjudge the market for our products or
any new product lines, including adequately anticipating the correct mix and trends of our private label merchandise,
our sales may be lower than predicted and we may be faced with a substantial amount of unsold inventory or missed
opportunities. In response to such a situation, we may be forced to rely on markdowns or promotional sales to
dispose of excess or slow-moving inventory, which could have a material adverse effect on our results of operations.
We may be unable to compete favorably in the highly competitive retail industry, and if we lose customers to our
competitors, our sales could decrease.
The teenage and young adult retail apparel, footwear, accessories and hardgoods industry is highly competitive. We
compete with other retailers for vendors, teenage and young adult customers, suitable store locations, qualified store
associates, management personnel, online marketing content, social media engagement and ecommerce traffic.
Some of our competitors are larger than we are and have substantially greater financial and marketing resources,
including advanced ecommerce market capabilities. Additionally, some of our competitors may offer more options
for free and/or expedited shipping for ecommerce sales. Direct competition with these and other retailers
may increase significantly in the future, which could require us, among other things, to lower our prices and could
result in the loss of our customers. Current and increased competition could have a material adverse effect on our
business, results of operations and financial condition.
U.S. and global economic and political uncertainty, coupled with cyclical economic trends in retailing, could
have a material adverse effect on our results of operations.
Our retail market historically has been subject to substantial cyclicality. As the U.S. and global economic and
political conditions change, the trends in discretionary consumer spending become unpredictable and discretionary
consumer spending could be reduced due to uncertainties about the future. When disposable income decreases or
discretionary consumer spending is reduced due to a decline in consumer confidence, purchases of apparel and
related products may decline. Uncertainty in the U.S. and global economies and political environment could have a
material adverse impact on our results of operations and financial position.
In response to a decline in disposable income and consumer confidence, we believe the “value” message has become
more important to consumers. As a retailer that sells approximately 85% branded merchandise, this trend may
negatively affect our business, as we generally will have to charge more than vertically integrated private label
retailers or we may be forced to rely on promotional sales to compete in our market which could have a material
adverse effect on our financial position.
11
A decrease in consumer traffic could cause our sales to be less than expected.
We depend heavily on generating customer traffic to our stores and websites. This includes locating many of our
stores in prominent locations within successful shopping malls. Sales at these stores are derived, in part, from the
volume of traffic in those malls. Our stores benefit from the ability of a mall’s “anchor” tenants, generally large
department stores and other area attractions, to generate consumer traffic in the vicinity of our stores and the
continuing popularity of malls as shopping destinations. In addition, some malls that were in prominent locations
when we opened our stores may cease to be viewed as prominent. If this trend continues or if the popularity of mall
shopping continues to decline generally among our customers, our sales may decline, which would impact our
results of operations. Furthermore, we depend on generating increased traffic to our ecommerce business and
converting that traffic into sales. This requires us to achieve expected results from our marketing and social media
campaigns, accuracy of data analytics, reliability of our website, network and transaction processing and a high-
quality online customer experience. Our sales volume and customer traffic in our stores and on our websites
generally could be adversely affected by, among other things, economic downturns, competition from other
ecommerce retailers, non-mall retailers and other malls, increases in gasoline prices, fluctuations in exchange rates
in border or tourism-oriented locations and the closing or decline in popularity of other stores in the malls in which
we are located. An uncertain economic outlook could curtail new shopping mall development, decrease shopping
mall and ecommerce traffic, reduce the number of hours that shopping mall operators keep their shopping malls
open or force them to cease operations entirely. A reduction in consumer traffic to our stores or websites could have
a material adverse effect on our business, results of operations and financial condition.
Our growth strategy depends on our ability to grow customer engagement in our current markets and expand
into new markets, which could strain our resources and cause the performance of our existing business to suffer.
Our growth largely depends on our ability to optimize our customer engagement in our current trade areas and
operate successfully in new geographic markets. However, our ability to open stores in new geographic markets,
including international locations, is subject to a variety of risks and uncertainties, and we may be unable to open new
stores as planned or have access to desirable lease space, and any failure to successfully open and operate in new
markets could have a material adverse effect on our results of operations. We intend to continue to open new stores
in future years, while remodeling a portion of our existing store base such that we have the optimum number of
stores in any given trade area. The expansion into new markets may present competitive, merchandising, hiring and
distribution challenges that are different from those currently encountered in our existing markets. In addition, our
proposed expansion will place increased demands on our operational, managerial and administrative resources.
These increased demands could cause us to operate our business less effectively, which in turn could cause
deterioration in the financial performance of our individual stores and our overall business. In addition, successful
execution of our growth strategy may require that we obtain additional financing, and we may not be able to obtain
that financing on acceptable terms or at all.
Failure to successfully integrate any businesses that we acquire could have an adverse impact on our results of
operations and financial performance.
We may, from time to time, acquire businesses, such as our acquisition of Blue Tomato and Fast Times. We may
experience difficulties in integrating any businesses we may acquire, including their stores, websites, facilities,
personnel, financial systems, distribution, operations and general operating procedures, and any such acquisitions
may also result in the diversion of our capital and our management’s attention from other business issues and
opportunities. If we experience difficulties in integrating acquisitions or if such acquisitions do not provide the
benefits that we expect to receive, we could experience increased costs and other operating inefficiencies, which
could have an adverse effect on our results of operations and overall financial performance.
12
Our plans for international expansion include risks that could have a negative impact on our results of
operations.
We plan to continue to open new stores in the Canadian, European and Australian markets. We may continue to
expand internationally into other markets, either organically or through additional acquisitions. International
markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our
existing U.S. market. As a result, operations in international markets may be less successful than our operations in
the U.S. Additionally, consumers in international markets may not be familiar with us or the brands we sell, and we
may need to build brand awareness in the markets. Furthermore, we have limited experience with the legal and
regulatory environments and market practices in new international markets and cannot guarantee that we will be
able to penetrate or successfully operate in these new international markets. We also expect to incur additional costs
in complying with applicable foreign laws and regulations as they pertain to both our products and our operations.
Accordingly, for the reasons noted above, our plans for international expansion include risks that could have a
negative impact on our results of operations.
Our sales and inventory levels fluctuate on a seasonal basis. Accordingly, our quarterly results of operations are
volatile and may fluctuate significantly.
Our quarterly results of operations have fluctuated significantly in the past and can be expected to continue to
fluctuate significantly in the future. Our sales and profitability are typically disproportionately higher in the third
and fourth fiscal quarters of each fiscal year due to increased sales during the back-to-school and winter holiday
shopping seasons. Sales during these periods cannot be used as an accurate indicator of annual results. As a result
of this seasonality, any factors negatively affecting us during the last half of the year, including unfavorable
economic conditions, adverse weather or our ability to acquire seasonal merchandise inventory, could have a
material adverse effect on our financial condition and results of operations for the entire year. In addition, in order
to prepare for the back-to-school and winter holiday shopping seasons, we must order and keep in stock significantly
more merchandise than we carry during other times of the year. Any unanticipated decrease in demand for our
products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown,
which could have a material adverse effect on our business, results of operations and financial condition.
Our quarterly results of operations are affected by a variety of other factors, including:
(cid:129)
the timing of new store openings and the relative proportion of our new stores to mature stores;
(cid:129) whether we are able to successfully integrate any new stores that we acquire and the presence of any
unanticipated liabilities in connection therewith;
fashion trends and changes in consumer preferences;
calendar shifts of holiday or seasonal periods;
changes in our merchandise mix;
timing of promotional events;
general economic conditions and, in particular, the retail sales environment;
actions by competitors or mall anchor tenants;
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129) weather conditions;
(cid:129)
(cid:129)
the level of pre-opening expenses associated with our new stores; and
inventory shrinkage beyond our historical average rates.
13
If our information systems fail to function effectively our operations could be disrupted and our financial results
could be harmed.
If our information systems do not work effectively, this could adversely impact the promptness and accuracy of our
transaction processing, financial accounting and reporting, and our ability to manage our business and properly
forecast operating results and cash requirements. Further, we may suffer loss of critical data and interruptions or
delays in our operations. Additionally, we rely on third-party service providers for certain information systems
functions. If a service provider fails to provide the data quality, communications capacity, security or services we
require, the failure could interrupt our services and could have a material adverse effect on our business, financial
condition and results of operations.
If the security of our data is breached we may be subjected to adverse publicity, litigation and significant
expenses.
Information systems are susceptible to an increasing threat of continually evolving cybersecurity risks. We maintain
security systems, devices and activity monitoring to prevent unauthorized access to our network, systems and
databases containing confidential, proprietary and personally identifiable information. Nevertheless, if unauthorized
parties gain access to our networks, systems or databases, they may be able to steal, publish, delete or modify
confidential information. In such circumstances, we could be held liable to our customers or other parties or be
subject to regulatory or other actions for breaching privacy rules and we may be exposed to reputation damage and
loss of customers’ trust and business. This could result in costly investigations and litigation, civil or criminal
penalties and adverse publicity that could adversely affect our financial condition, results of operations and
reputation. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional
resources, train employees and engage third-parties. Further, the regulatory environment surrounding information
security, cybersecurity and privacy is increasingly demanding. If we are unable to comply with the new and
changing security standards, we may be subject to fines, restrictions and financial exposure, which could adversely
affect our retail operations.
Significant fluctuations and volatility in the cost of raw materials, global labor, shipping and other costs related
to the production of our merchandise may have a material adverse effect on our business, results of operations
and financial conditions.
Increases in the cost of raw materials, global labor costs, freight costs and other shipping costs in the production and
transportation of our merchandise can result in higher costs for this merchandise. The costs for these products are
affected by weather, consumer demand, government regulation, speculation on the commodities market and other
factors that are generally unpredictable and beyond our control. Our gross profit and results of operations could be
adversely affected to the extent that the selling prices of our products do not increase proportionately with the
increases in the costs of raw materials. Increasing labor costs and oil-related product costs, such as manufacturing
and transportation costs, could also adversely impact gross profit. Additionally, significant changes in the
relationship between carrier capacity and shipper demand could increase transportation costs, which could also
adversely impact gross profit.
Most of our merchandise is produced by foreign manufacturers; therefore, the availability, quality and costs of
our merchandise may be negatively affected by risks associated with international trade and other international
conditions.
Most of our merchandise is produced by manufacturers around the world. Some of these facilities are located in
regions that may be affected by natural disasters, political instability or other conditions that could cause a
disruption in trade. Trade restrictions such as increased tariffs or quotas, or both, could also increase the cost and
reduce the supply of merchandise available to us. Any reduction in merchandise available to us or any increase in
its cost due to tariffs, quotas or local issues that disrupt trade could have a material adverse effect on our results of
operations. This includes costs to comply with regulatory developments regarding the use of “conflict minerals,”
certain minerals originating from the Democratic Republic of Congo and adjoining countries, which may affect the
sourcing and availability of raw materials used by manufacturers and subject us to increased costs associated with
our products, processes or sources of our inputs. Our business could be adversely affected by disruptions in the
supply chain, such as strikes, work stoppages or port closures.
14
Fluctuations in foreign currency exchange rates could impact our financial condition and results of operations.
We are exposed to foreign currency exchange rate risk with respect to our sales, profits, assets and liabilities
denominated in currencies other than the U.S. dollar. As a result, the fluctuation in the value of the U.S. dollar
against other currencies could have a material adverse effect on our results of operations, financial condition and
cash flows. Upon translation, operating results may differ materially from expectations. As we continue to expand
our international operations, our exposure to exchange rate fluctuations will increase. Tourism spending may be
affected by changes in currency exchange rates, and as a result, sales at stores with higher tourism traffic may be
adversely impacted by fluctuations in currency exchange rates. Further, although the prices charged by vendors for
the merchandise we purchase are primarily denominated in U.S. dollars, a decline in the relative value of the U.S.
dollar to foreign currencies could lead to increased merchandise costs, which could negatively affect our competitive
position and our results of operations.
Our business could be adversely affected by increased labor costs, including costs related to an increase in
minimum wage and health care.
Labor is one of the primary components in the cost of operating our business. Increased labor costs, whether due to
competition, unionization, increased minimum wage, state unemployment rates, health care, or other employee
benefits costs may adversely impact our operating profit. A considerable amount of our store team members are
paid at rates related to the federal or state minimum wage and any changes to the minimum wage rate may increase
our operating expenses. Furthermore, inconsistent increases in state and or city minimum wage requirements limit
our ability to increase prices across all markets and channels. Additionally, we are self-insured with respect to our
health care coverage in the U.S. and do not purchase third party insurance for the health insurance benefits provided
to employees with the exception of pre-defined stop loss coverage, which helps limit the cost of large claims. There
is no assurance that future health care legislation will not adversely impact our results or operations.
Our business could suffer if a manufacturer fails to use acceptable labor and environmental practices.
We do not control our vendors or the manufacturers that produce the products we buy from them, nor do we control
the labor and environmental practices of our vendors and these manufacturers. The violation of labor, safety,
environmental and/or other laws and standards by any of our vendors or these manufacturers, or the divergence of
the labor and environmental practices followed by any of our vendors or these manufacturers from those generally
accepted as ethical in the U.S., could interrupt, or otherwise disrupt, the shipment of finished products to us or
damage our reputation. Any of these, in turn, could have a material adverse effect on our reputation, financial
condition and results of operations. In that regard, most of the products we sell are manufactured overseas,
primarily in Asia, Mexico and Central America, which may increase the risk that the labor and environmental
practices followed by the manufacturers of these products may differ from those considered acceptable in the U.S.
Additionally, our products are subject to regulation of and regulatory standards set by various governmental
authorities with respect to quality and safety. These regulations and standards may change from time to time. Our
inability to comply on a timely basis with regulatory requirements could result in significant fines or penalties,
which could adversely affect our reputation and sales. Issues with the quality and safety of merchandise we sell,
regardless of our culpability, or customer concerns about such issues, could result in damage to our reputation, lost
sales, uninsured product liability claims or losses, merchandise recalls and increased costs.
If we fail to develop and maintain good relationships with vendors, or if a vendor is otherwise unable or
unwilling to supply us with adequate quantities of their products at acceptable prices, our business and financial
performance could suffer.
Our business is dependent on developing and maintaining good relationships with a large number of vendors to
provide our customers with an extensive selection of current and relevant brands. In addition to maintaining our
large number of current vendor relationships, each year we are identifying, attracting and launching new vendors to
provide a diverse and unique product assortment. We believe that we generally are able to obtain attractive pricing
and terms from vendors because we are perceived as a desirable customer, and deterioration in our relationship with
our vendors could have a material adverse effect on our business.
15
However, there can be no assurance that our current vendors or new vendors will provide us with an adequate
supply or quality of products or acceptable pricing. Our vendors could discontinue selling to us, raise the prices they
charge, sell through direct channels or allow their merchandise to be discounted by other retailers. There can be no
assurance that we will be able to acquire desired merchandise in sufficient quantities on terms acceptable to us in the
future. In addition, certain vendors sell their products directly to the retail market and therefore compete with us
directly and other vendors may decide to do so in the future. There can be no assurance that such vendors will not
decide to discontinue supplying their products to us, supply us only less popular or lower quality items, raise the
prices they charge us or focus on selling their products directly.
In addition, a number of our vendors are smaller, less capitalized companies and are more likely to be impacted by
unfavorable general economic and market conditions than larger and better capitalized companies. These smaller
vendors may not have sufficient liquidity during economic downturns to properly fund their businesses and their
ability to supply their products to us could be negatively impacted. Any inability to acquire suitable merchandise at
acceptable prices, or the loss of one or more key vendors, could have a material adverse effect on our business,
results of operations and financial condition.
Our business is susceptible to weather conditions that are out of our control, including the potential risks of
unpredictable weather patterns and any weather patterns associated with naturally occurring global climate
change, and the resultant unseasonable weather could have a negative impact on our results of operations.
Our business is susceptible to unseasonable weather conditions. For example, extended periods of unseasonably
warm temperatures during the winter season or cool weather during the summer season (including any weather
patterns associated with global warming and cooling) could render a portion of our inventory incompatible with
those unseasonable conditions. These prolonged unseasonable weather conditions could have a material adverse
effect on our business and results of operations.
Our omni-channel strategy may not have the return we anticipate, which could have an adverse effect on our
results of operations.
We are executing an omni-channel strategy to enable our customers to shop wherever, whenever and however they
choose to engage with us. Our omni-channel strategy may not deliver the results we anticipate or may not
adequately anticipate changing consumer trends, preferences and expectations. We will continue to develop
additional ways to execute our superior omni-channel experience and interact with our customers, which requires
significant investments in IT systems and changes in operational strategy, including localization, online and in-store
point of sale systems, order management system, and transportation management system. If we fail to effectively
integrate our store and ecommerce shopping experiences, effectively scale our IT structure or we do not realize the
return on our investments that we anticipate our operating results could be adversely affected. Our competitors are
also investing in omni-channel initiatives. If our competitors are able to be more effective in their strategy, it could
have an adverse effect on our results of operations. If we our omni-channel strategy fails to meet customer
expectations related to functionality, timely delivery, or customer experience, our business and results of operations
may be adversely affected. Additionally, to manage the anticipated growth of our operations and personnel, we will
need to continue to improve our operational and financial systems, transaction processing, procedures and controls,
and in doing so could incur substantial additional expenses that could impact our financial results.
If we lose key executives or are unable to attract and retain the talent required for our business, our financial
performance could suffer.
Our performance depends largely on the efforts and abilities of our key executives. If we lose the services of one or
more of our key executives, we may not be able to successfully manage our business or achieve our growth
objectives. Furthermore, as our business grows, we will need to attract and retain additional qualified personnel in a
timely manner and we may not be able to do so.
16
Failure to meet our staffing needs could adversely affect our ability to implement our growth strategy and could
have a material impact on our results of operations.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified
employees who understand and appreciate our culture and brand and are able to adequately represent this culture.
Qualified individuals of the requisite caliber, skills and number needed to fill these positions may be in short supply
in some areas and the employee turnover rate in the retail industry is high. Our business depends on the ability to
hire and retain qualified technical and support roles for procurement, distribution, ecommerce and back office
functions. Competition for qualified employees in these areas could require us to pay higher wages to attract a
sufficient number of suitable employees.
If we are unable to hire and retain store managers and store associates capable of consistently providing a high level
of customer service, as demonstrated by their enthusiasm for our culture and knowledge of our merchandise, our
ability to open new stores may be impaired and the performance of our existing and new stores could be materially
adversely affected. We are also dependent upon temporary personnel to adequately staff our operations particularly
during busy periods such as the back-to-school and winter holiday seasons. There can be no assurance that we will
receive adequate assistance from our temporary personnel, or that there will be sufficient sources of temporary
personnel. If we are unable to hire qualified temporary personnel, our results of operations could be adversely
impacted.
Although none of our employees are currently covered by collective bargaining agreements, we cannot guarantee
that our employees will not elect to be represented by labor unions in the future, which could increase our labor
costs and could subject us to the risk of work stoppages and strikes. Any such failure to meet our staffing needs, any
material increases in employee turnover rates, any increases in labor costs or any work stoppages, interruptions or
strikes could have a material adverse effect on our business or results of operations.
A decline in cash flows from operations could have a material adverse effect on our business and growth plans.
We depend on cash flow from operations to fund our current operations and our growth strategy, including the
payment of our operating leases, wages, store operation costs and other cash needs. If our business does not
generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us from
borrowings under our credit facility or from other sources, we may not be able to pay our operating lease expenses,
grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could have
a material adverse effect on our business.
The terms of our secured credit agreement impose certain restrictions on us that may impair our ability to
respond to changing business and economic conditions, which could have a significant adverse impact on our
business. Additionally, our business could suffer if our ability to acquire financing is reduced or eliminated.
We maintain a secured credit agreement with Wells Fargo Bank, N.A., which provided us with a senior secured
credit facility (“credit facility”) of up to $35.0 million. The credit facility contains various representations,
warranties and restrictive covenants that, among other things and subject to specified circumstances and exceptions,
restrict our ability to incur indebtedness (including guarantees), grant liens, make investments, pay dividends or
distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers, dispose of
certain assets or change the nature of their business. The credit facility contains certain financial maintenance
covenants that generally require us to have net income after taxes of at least $5.0 million on a trailing four-quarter
basis and a quick ratio of 1.25:1.0 at the end of each fiscal quarter. These restrictions could (1) limit our ability to
plan for or react to market conditions or meet capital needs or otherwise restrict our activities or business plans; and
(2) adversely affect our ability to finance our operations, strategic acquisitions, investments or other capital needs or
to engage in other business activities that would be in our interest.
17
The credit facility contains certain affirmative covenants, including reporting requirements such as delivery of
financial statements, certificates and notices of certain events, maintaining insurance, and providing additional
guarantees and collateral in certain circumstances. The credit facility includes customary events of default including
non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross-
default to other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or
security interests, material judgments and change of control. Additionally, we cannot be assured that our borrowing
relationship with our lenders will continue or that our lenders will remain able to support their commitments to us in
the future. If our lenders fail to do so, then we may not be able to secure alternative financing on commercially
reasonable terms, or at all.
Our business could suffer with the closure or disruption of our home office or our distribution centers.
In the U.S., we rely on a single distribution center located in Corona, California to receive, store and distribute the
vast majority of our merchandise to our domestic stores. Internationally, we operate a combined distribution and
ecommerce fulfillment center located in Graz, Austria that supports our Blue Tomato ecommerce and store
operations in Europe. We operate a distribution center located in Delta, British Columbia, Canada to distribute our
merchandise to our Canadian stores. We operate a distribution and fulfillment center located in Melbourne, Australia
to distribute our merchandise to our Australian stores. Additionally, we are headquartered in Lynnwood,
Washington. As a result, a natural disaster or other catastrophic event that affects one of the regions where we
operate these centers or our home office could significantly disrupt our operations and have a material adverse effect
on our business, results of operations and financial condition.
The effects of war, acts of terrorism, threat of terrorism, or other types of mall violence, could adversely affect
our business.
Most of our stores are located in shopping malls. Any threat of terrorist attacks or actual terrorist events, or other
types of mall violence, such as shootings in malls, particularly in public areas, could lead to lower consumer traffic
in shopping malls. In addition, local authorities or mall management could close shopping malls in response to
security concerns. Mall closures, as well as lower consumer traffic due to security concerns, could result in
decreased sales. Additionally, the threat, escalation or commencement of war or other armed conflict elsewhere,
could significantly diminish consumer spending, and result in decreased sales. Decreased sales could have a
material adverse effect on our business, financial condition and results of operations.
Our inability or failure to protect our intellectual property or our infringement of other’s intellectual property
could have a negative impact on our operating results.
We believe that our trademarks and domain names are valuable assets that are critical to our success. The
unauthorized use or other misappropriation of our trademarks or domain names could diminish the value of the
Zumiez, Blue Tomato, or Fast Times brands, our store concepts, our private label brands or our goodwill and cause a
decline in our net sales. Although we have secured or are in the process of securing protection for our trademarks
and domain names in a number of countries outside of the U.S., there are certain countries where we do not
currently have or where we do not currently intend to apply for protection for certain trademarks. Also, the efforts
we have taken to protect our trademarks may not be sufficient or effective. Therefore, we may not be able to
prevent other persons from using our trademarks or domain names outside of the U.S., which also could adversely
affect our business. We are also subject to the risk that we may infringe on the intellectual property rights of third
parties. Any infringement or other intellectual property claim made against us, whether or not it has merit, could be
time-consuming, result in costly litigation, cause product delays or require us to pay royalties or license fees. As a
result, any such claim could have a material adverse effect on our operating results.
Our operations expose us to the risk of litigation, which could lead to significant potential liability and costs that
could harm our business, financial condition or results of operations.
We employ a substantial number of full-time and part-time employees, a majority of whom are employed at our
store locations. As a result, we are subject to a large number of federal, state and foreign laws and regulations
relating to employment. This creates a risk of potential claims that we have violated laws related to discrimination
and harassment, health and safety, wage and hour laws, criminal activity, personal injury and other claims. We are
also subject to other types of claims in the ordinary course of our business. Some or all of these claims may give
rise to litigation, which could be time-consuming for our management team, costly and harmful to our business.
18
In addition, we are exposed to the risk of class action litigation. The costs of defense and the risk of loss in
connection with class action suits are greater than in single-party litigation claims. Due to the costs of defending
against such litigation, the size of judgments that may be awarded against us, and the loss of significant management
time devoted to such litigation, we cannot provide assurance that such litigation will not disrupt our business or
impact our financial results.
We are involved, from time to time, in litigation incidental to our business including complaints filed by investors.
This litigation could result in substantial costs, and could divert management's attention and resources, which could
harm our business. Risks associated with legal liability are often difficult to assess or quantify, and their existence
and magnitude can remain unknown for significant periods of time.
Failure to comply with federal, state, local or foreign laws and regulations, or changes in these laws and
regulations, could have an adverse impact on our results of operations and financial performance.
Our business is subject to a wide array of laws and regulations including those related to employment, trade,
consumer protection, transportation, occupancy laws, health care, wage laws, employee health and safety, taxes,
privacy, health information privacy, identify theft, customs, truth-in-advertising, securities laws, unsolicited
commercial communication and environmental issues. Our policies, procedures and internal controls are designed
to comply with foreign and domestic laws and regulations, such as those required by the Sarbanes-Oxley Act of
2002 and the U.S. Foreign Corrupt Practices Act. Although we have policies and procedures aimed at ensuring legal
and regulatory compliance, our employees or vendors could take actions that violate these laws and regulations. Any
violations of such laws or regulations could have an adverse effect on our reputation, results of operations, financial
condition and cash flows. Furthermore, changes in the regulations, the imposition of additional regulations, or the
enactment of any new legislation, particularly in the U.S. and Europe, could adversely affect our results of
operations or financial condition.
Fluctuations in our tax obligations and effective tax rate may result in volatility in our operating results.
We are subject to income taxes in many domestic and foreign jurisdictions. In addition, our products are subject to
import and excise duties and/or sales, consumption or value-added taxes in many jurisdictions. We record tax
expense based on our estimates of future payments, which include reserves for estimates of probable settlements of
domestic and foreign tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions.
There can be no assurance as to the outcome of these audits which may have an adverse effect to our business. In
addition, our effective tax rate may be materially impacted by changes in tax rates and duties, the mix and level of
earnings or losses by taxing jurisdictions, or by changes to existing accounting rules or regulations. Changes to
foreign or domestic tax laws could have a material impact on our financial condition, results of operations or cash
flows.
We may fail to meet analyst expectations, which could cause the price of our stock to decline.
Our common stock is traded publicly and various securities analysts follow our financial results and issue reports on
us. These reports include information about our historical financial results as well as the analysts' estimates of our
future performance. The analysts' estimates are based upon their own independent opinions and can be different
from our estimates or expectations. If our operating results are below the estimates or expectations of public market
analysts and investors, our stock price could decline.
The reduction of total outstanding shares through the execution of a share repurchase program of common stock
may increase the risk that a group of shareholders could form a group to become a controlling shareholder.
A share repurchase program may be conducted from time to time under authorization made by our Board of
Directors. We do not have a controlling shareholder, nor are we aware of any shareholders that have formed a
“group” (defined as when two or more persons agree to act together for the purposes of acquiring, holding, voting or
otherwise disposing of the equity securities of an issuer). The reduction of total outstanding shares through the
execution of a share repurchase program of common stock may increase the risk that a group of shareholders could
form a group to become a controlling shareholder.
19
A controlling shareholder would have significant influence over, and may have the ability to control, matters
requiring approval by our shareholders, including the election of directors and approval of mergers, consolidations,
sales of assets, recapitalizations and amendments to our articles of incorporation. Furthermore, a controlling
shareholder may take actions with which other shareholders do not agree, including actions that delay, defer or
prevent a change of control of the company and that could cause the price that investors are willing to pay for the
company’s stock to decline.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
All of our stores are occupied under operating leases and encompassed approximately 2.1 million total square
feet at February 2, 2019.
We own approximately 356,000 square feet of land in Lynnwood, Washington on which we own a 63,071
square foot home office. Additionally, we lease 14,208 square feet of office space in Schladming, Austria for our
European home office.
We own a 168,450 square foot building in Corona, California that serves as our domestic warehouse and
distribution center.
We lease 17,168 square feet of a distribution facility in Delta, British Columbia, Canada that supports our
store operations in Canada. We lease a 90,826 square feet distribution and ecommerce fulfillment center in Graz,
Austria that supports our Blue Tomato ecommerce and store operations in Europe. We lease a 10,010 square feet
distribution and ecommerce fulfillment center in Melbourne, Australia that supports our Fast Times ecommerce and
store operations in Australia.
Item 3.
LEGAL PROCEEDINGS
We are involved from time to time in litigation incidental to our business. We believe that the outcome of
current litigation is not expected to have a material adverse effect on our results of operations or financial condition.
See Note 10, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements found in
Part IV Item 15 of this Form 10-K, for additional information related to legal proceedings.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “ZUMZ.” At February 2,
2019, there were 25,521,082 shares of common stock outstanding. The following table sets forth the high and low
sales prices for our common stock on the Nasdaq Global Select Market.
Fiscal 2018
First Fiscal Quarter (February 4, 2018—May 5, 2018).............. $
Second Fiscal Quarter (May 6, 2018—August 4, 2018) ............ $
Third Fiscal Quarter (August 5, 2018—November 3, 2018)...... $
Fourth Fiscal Quarter (November 4, 2018—
February 2, 2019)........................................................................ $
26.30
31.55
32.70
25.67
High
Low
$
$
$
$
$
$
$
$
18.55
20.25
21.16
17.57
Low
15.90
11.60
11.43
16.90
Fiscal 2017
First Fiscal Quarter (January 29, 2017—April 29, 2017)........... $
Second Fiscal Quarter (April 30, 2017—July 29, 2017) ............ $
Third Fiscal Quarter (July 30, 2017—October 28, 2017) .......... $
Fourth Fiscal Quarter (October 29, 2017—
February 3, 2018)........................................................................ $
High
21.75
18.60
20.10
24.45
22
Performance Measurement Comparison
The following graph shows a comparison for total cumulative returns for Zumiez, the Nasdaq Composite
Index and the Nasdaq Retail Trade Index during the period commencing on February 1, 2014 and ending on
February 2, 2019. The comparison assumes $100 was invested on February 1, 2014 in each of Zumiez, the Nasdaq
Composite Index and the Nasdaq Retail Trade Index, and assumes the reinvestment of all dividends, if any. The
comparison in the following graph and table is required by the SEC and is not intended to be a forecast or to be
indicative of future Company common stock performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Zumiez Inc., the NASDAQ Composite Index
and the NASDAQ Retail Trade Index
$350
$300
$250
$200
$150
$100
$50
$0
2/1/14
1/31/15
1/30/16
1/28/17
2/3/18
2/2/19
Zumiez Inc.
NASDAQ Composite
NASDAQ Retail Trade
*$100 invested on 2/1/14 in stock or 1/31/14 in index, including reinvestment of dividends.
Indexes calculated on month-end basis.
Zumiez ..............................................................................................
NASDAQ Composite.......................................................................
NASDAQ Retail Trade ...................................................................
100.00
100.00
100.00
173.28
114.30
112.78
84.15
115.10
142.83
87.59
141.84
174.47
95.49
189.26
261.97
116.82
187.97
289.77
2/1/14
1/31/15
1/30/16
1/28/17
2/3/18
2/2/19
Holders of the Company’s Capital Stock
We had approximately 12 shareholders of record as of March 11, 2019.
23
Dividends
No cash dividends have been declared on our common stock to date nor have any decisions been made to pay
a dividend in the foreseeable future. Payment of dividends is evaluated on a periodic basis.
Recent Sales of Unregistered Securities
None
Issuer Purchases of Equity Securities
The following table presents information of our common stock made during the thirteen weeks ended
February 2, 2019 (in thousands, except average price paid per share):
Period
November 4, 2018—December 1, 2018 .........................
December 2, 2018—January 5, 2019 (2) ........................
January 6, 2019—February 2, 2019................................
Total ................................................................................
Total Number
of Shares
Purchased
— $
2
—
2
Average Price
Paid per Share
—
19.02
—
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
— $
—
—
—
Dollar Value of
Shares that May
Yet be Repurchased
Under the Plans
or Programs (1)
—
—
—
(1)
The share repurchase program is conducted under authorizations made from time to time by our Board of
Directors. In December 2018, our Board of Directors authorized us to repurchase up to $75.0 million of our
common stock. This program is expected to continue through February 1, 2020, unless the time period is
extended or shortened by the Board of Directors. At February 3, 2019, there remains $75.0 million available
for share repurchase under the current share repurchase program.
(2) During the thirteen weeks ended February 2, 2019, 1,703 shares were purchased by us in order to satisfy
employee tax withholding obligations upon the vesting of restricted stock. These shares were not acquired
pursuant to any publicly announced purchase plan or program.
24
Item 6.
SELECTED FINANCIAL DATA
The following selected consolidated financial information has been derived from our audited Consolidated Financial
Statements. The data should be read in conjunction with our Consolidated Financial Statements and the notes thereto, and
Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
Fiscal 2018
(1)
Fiscal 2017
(2)
Fiscal 2016
Fiscal 2015 (3)
Fiscal 2014 (4)
Statement of Operations Data
(in thousands, except per share data):
Net sales ................................................................... $ 978,617
Cost of goods sold.................................................... 642,681
Gross profit............................................................... 335,936
Selling, general and administrative
expenses ................................................................
Operating profit........................................................
Interest income, net ..................................................
Other (expense) income, net ....................................
Earnings before income taxes ..................................
Provision for income taxes.......................................
Net income ............................................................... $
Earnings per share:
62,330
17,125
45,205
274,858
61,078
1,692
(440)
Basic................................................................... $
Diluted................................................................ $
1.81
1.79
Weighted average shares outstanding:
$
$
$
$ 927,401
617,527
309,874
$ 836,268
561,266
275,002
$
$
804,183
535,559
268,624
261,114
48,760
495
(852)
48,403
21,601
26,802
235,259
39,743
32
449
40,224
14,320
25,904
$
1.09
1.08
$
$
1.05
1.04
222,459
46,165
529
(833)
$
$
$
45,861
17,076
28,785
1.05
1.04
27,497
27,673
$
$
$
811,551
524,468
287,083
215,512
71,571
637
(557)
71,651
28,459
43,192
1.50
1.47
28,871
29,288
Basic...................................................................
Diluted................................................................
24,936
25,212
24,679
24,878
24,727
24,908
Balance Sheet Data (in thousands):
Cash, cash equivalents and current
marketable securities............................................. $ 165,334
Working capital........................................................ 234,067
Total assets ............................................................... 534,190
40,626
Total long-term liabilities.........................................
Total shareholders’ equity........................................ 400,456
$
$ 121,905
179,916
499,510
44,348
355,915
$
78,826
137,766
426,683
46,035
307,051
$
75,554
129,755
414,695
48,596
296,957
154,644
191,351
493,705
52,734
359,524
Other Financial Data (in thousands,
except gross margin and operating
margin):
Gross profit...............................................................
Operating margin .....................................................
Capital expenditures................................................. $
Depreciation, amortization and accretion ................ $
Company Data:
Number of stores open at end of period ...................
Comparable sales increase (decrease) (5) ................
Net sales per store (6) (in thousands)....................... $
Total store square footage (7)
(in thousands) ........................................................
Average square footage per store (8) .......................
Net sales per square foot (9)..................................... $
34.3%
6.2%
$
$
21,028
27,316
33.4%
5.2%
$
$
24,062
27,288
32.9%
4.8%
$
$
20,400
27,916
33.4%
5.7%
$
$
34,834
30,410
35.4%
8.8%
35,758
29,167
707
5.6%
$
1,385
698
5.9%
1,333
$
685
(0.2%)
1,235
2,072
2,931
474
$
2,041
2,924
456
$
2,009
2,932
420
$
$
658
(5.3%)
1,256
603
4.6%
$
1,390
1,935
2,941
427
$
1,770
2,936
473
(1)
Fiscal 2018 was a 52-week period. Included in the results for fiscal 2018 is $8.7 million in benefit from the
impact of U.S. federal tax legislation.
25
(2)
(3)
(4)
(5)
Fiscal 2017 was a 53-week period. All other fiscal year presented are 52-week periods. Included in the results
for fiscal 2017 is $10.3 million of net sales related to the additional week in the 53-week fiscal year, $3.8
million in net sales related to the recognition of deferred revenue due to changes in our STASH loyalty
program estimated redemption rate and $3.4 million in our provision for income taxes due to a valuation
allowance against our deferred tax assets in Austria.
Included in the results for fiscal 2015 is $1.2 million for the exit costs associated with the closure of our
Kansas fulfillment center, $0.6 million for the expense associated with the incentive payments in conjunction
with our acquisition of Blue Tomato and an expense of $0.9 million of amortization of intangible assets.
Included in the results for fiscal 2014 is $6.4 million for the expense associated with the incentive payments in
conjunction with our acquisition of Blue Tomato and an expense of $2.3 million of amortization of intangible
assets.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—General” for
more information about how we compute comparable sales.
(6) Net sales per store represents net sales, including ecommerce sales, for the period divided by the average
number of stores open during the period. For purposes of this calculation, the average number of stores open
during the period is equal to the sum of the number of stores open as of the end of each month during the
fiscal year divided by the number of months in the fiscal year.
Total store square footage includes retail selling, storage and back office space at the end of the fiscal year.
(7)
(8) Average square footage per store is calculated based on the total store square footage at the end of the fiscal
year, including retail selling, storage and back office space, of all stores open at the end of the fiscal year.
(9) Net sales per square foot represents net sales, including ecommerce sales, for the period divided by the
average square footage of stores open during the period. For purposes of this calculation, the average square
footage of stores open during the period is equal to the sum of the total square footage of the stores open as of
the end of each month during the fiscal year divided by the number of months in the fiscal year.
26
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes included elsewhere in this document. This
discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including those
discussed in “Item 1A Risk Factors.” See the cautionary note regarding forward-looking statements set forth at the
beginning of Part I of the Annual Report on Form 10-K.
Fiscal 2018—A Review of This Past Year
In fiscal 2018, we continued to see strong sales results and have now seen positive comparable sales for ten
consecutive quarters driven by key brands and fashion trends in the market, as well as our unique brand experience.
Our focus remains centered on the customer; including launching over 100 new brands during fiscal 2018 and each
of the preceding 5 years. Consistently providing our customers with new choices and uniqueness in our product
offering is essential to our success and provides us with growth drivers for the future. The full year comparable
sales for fiscal 2018 increased 5.6% on top of comparable sales growth of 5.9% in fiscal 2017. Total net sales
growth was 5.5%, despite the benefit of the 53rd week in the prior year. Operating margins increased from the prior
year due primarily to leverage of our occupancy costs, reduction in inventory shrinkage and product margin
improvements. We added 5 new stores in North America in fiscal 2018, which was down from 12 new stores added
in fiscal 2017, as we get closer to our target store count. During fiscal 2018 we also added 7 new Blue Tomato
stores in Europe and 1 new Fast Times store in Australia and continue to have meaningful expansion opportunities
in these areas.
As a leading lifestyle retailer, we continue to differentiate ourselves through our distinctive brand offering and
diverse product selection, as well as the unique customer experience across all of our platforms. We have made
investments over several years to integrate the digital and physical channels creating a seamless shopping experience
for our customer, which we believe is critical for our long-term financial performance. We are continuing to deliver
our online orders in North America from our stores, which has provided significant improvements in the speed of
delivery to our customers and the overall experience. In-store fulfillment is a key part of strategy that we believe
will drive long term market share by leveraging the strengths of our store sales team, providing better and faster
service to customers, improving product margins, providing additional selling opportunities, and utilizing one cost
structure to serve the customer.
The following table shows net sales, operating profit, operating margin and diluted earnings per share for
fiscal 2018 compared to fiscal 2017. Fiscal 2018 diluted earnings per share results include $8.7 million in benefit
from the impact of U.S. federal tax legislation or $0.35 per share. Fiscal 2017 results include $10.3 million of net
sales related to the additional week in the 53-week period, $3.8 million in net sales related to the recognition of
deferred revenue due to changes in our STASH loyalty program estimated redemption rate, and $3.4 million in our
provision for income taxes due to a valuation allowance against our deferred tax assets in Austria.
Net sales (in thousands)....................................................... $ 978,617
61,078
Operating profit (in thousands) ........................................... $
Operating margin.................................................................
Diluted earnings per share ................................................... $
1.79
% Change
Fiscal 2017
$ 927,401
48,760
$
6.2%
$
1.08
5.2%
5.5%
25.3%
65.7%
Fiscal 2018
(1)
(1)
Fiscal 2018 was a 52-week period and fiscal 2017 was a 53-week period.
The increase in net sales was driven primarily by a 5.6% comparable sales increase and the net addition of 9
stores (13 new stores offset by 4 store closures). The increase in comparable sales was driven by an increase in
transactions and an increase in dollars per transaction. Dollars per transaction increased due to an increase in
average unit retail, partially offset by a decrease in units per transaction. Operating margin increased in fiscal 2018
compared to fiscal 2017 primarily as a result of gross margin improvements.
27
Fiscal 2019—A Look At the Upcoming Year
We are entering 2019 with ten consecutive quarters of positive comparable sales growth behind us and strong
brand and fashion trends in the business. In 2019, our focus will be on continued execution of our core culture and
brand strategies as well as strategic investments centered on long-term quality growth. These investments will be
largely focused on enhancing the customer experience and creating operational efficiencies to drive operating
margin expansion. As we reach our targeted number of stores in North America, we expect that total store count
growth in fiscal 2019 in the region will continue to moderate. In Europe and Australia, however, we continue to
believe we have growth opportunities and we are planning 8 new stores in fiscal 2019, consistent with fiscal 2018.
In fiscal 2019, we expect our cost structure will grow at a slower rate than 2018, primarily tied to the
leveraging of our store costs and expense initiatives across the organization. We anticipate inventory levels per
square foot will grow roughly in-line with sales growth. Excluding any possible share buy-backs, we expect cash,
short-term investments and working capital to increase, and do not anticipate any new long-term borrowings during
the year. Long-term, we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing
on the changing consumer environment while managing our cost structure.
General
Net sales constitute gross sales, net of actual and estimated returns and deductions for promotions, and
shipping revenue. Net sales include our store sales and our ecommerce sales. We record the sale of gift cards as a
current liability and recognize revenue when a customer redeems a gift card. Additionally, the portion of gift cards
that will not be redeemed (“gift card breakage”) is recognized based on our historical redemption rate in proportion
to the pattern of rights exercised by the customer.
We report “comparable sales” based on net sales beginning on the first anniversary of the first day of
operation of a new store or ecommerce business. We operate a sales strategy that integrates our stores with our
ecommerce platform. There is significant interaction between our store sales and our ecommerce sales channels and
we believe that they are utilized in tandem to serve our customers. Therefore, our comparable sales also include our
ecommerce sales. Changes in our comparable sales between two periods are based on net sales of store or
ecommerce business which were in operation during both of the two periods being compared and, if a store or
ecommerce business is included in the calculation of comparable sales for only a portion of one of the two periods
being compared, then that store or ecommerce business is included in the calculation for only the comparable
portion of the other period. Any increase or decrease less than 25% in square footage of an existing comparable
store, including remodels and relocations within the same mall, or temporary closures less than seven days does not
eliminate that store from inclusion in the calculation of comparable sales. Any store or ecommerce business that we
acquire will be included in the calculation of comparable sales after the first anniversary of the acquisition
date. Current year foreign exchange rates are applied to both current year and prior year comparable sales to
achieve a consistent basis for comparison. There may be variations in the way in which some of our competitors
and other apparel retailers calculate comparable sales. As a result, data herein regarding our comparable sales may
not be comparable to similar data made available by our competitors or other retailers.
Cost of goods sold consists of branded merchandise costs and our private label merchandise costs including
design, sourcing, importing and inbound freight costs. Our cost of goods sold also includes shrinkage, buying,
occupancy, ecommerce fulfillment, distribution and warehousing costs (including associated depreciation) and
freight costs for store merchandise transfers. This may not be comparable to the way in which our competitors or
other retailers compute their cost of goods sold. Cash consideration received from vendors is reported as a reduction
of cost of goods sold if the inventory has sold, a reduction of the carrying value of the inventory if the inventory is
still on hand, or a reduction of selling, general and administrative expense if the amounts are reimbursements of
specific, incremental and identifiable costs of selling the vendors’ products.
With respect to the freight component of our ecommerce sales, amounts billed to our customers are included
in net sales and the related freight cost is charged to cost of goods sold.
28
Selling, general and administrative expenses consist primarily of store personnel wages and benefits,
administrative staff and infrastructure expenses, freight costs for merchandise shipments from the distribution
centers to the stores, store supplies, depreciation on fixed assets at our home office and stores, facility expenses,
training expenses and advertising and marketing costs. Credit card fees, insurance, public company expenses, legal
expenses, amortization of intangibles, and other miscellaneous operating costs are also included in selling, general
and administrative expenses. This may not be comparable to the way in which our competitors or other retailers
compute their selling, general and administrative expenses.
Key Performance Indicators
Our management evaluates the following items, which we consider key performance indicators, in assessing
our performance:
Net sales. Net sales constitute gross sales, net of sales returns and deductions for promotions, and shipping
revenue. Net sales includes comparable sales and new store sales for all our store and ecommerce businesses. We
consider net sales to be an important indicator of our current performance. Net sales results are important to achieve
leveraging of our costs, including store payroll and store occupancy. Net sales also have a direct impact on our
operating profit, cash and working capital.
Gross profit. Gross profit measures whether we are optimizing the price and inventory levels of our
merchandise. Gross profit is the difference between net sales and cost of goods sold. Any inability to obtain
acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect
on our gross profit and results of operations.
Operating profit. We view operating profit as a key indicator of our success. Operating profit is the
difference between gross profit and selling, general and administrative expenses. The key drivers of operating profit
are net sales, gross profit, our ability to control selling, general and administrative expenses and our level of capital
expenditures affecting depreciation expense.
Diluted earnings per share. Diluted earnings per share is based on the weighted average number of common
shares and common share equivalents outstanding during the period. We view diluted earnings per share as a key
indicator of our success in increasing shareholder value.
Results of Operations
The following table presents selected items on the consolidated statements of income as a percent of net sales:
Fiscal 2018
Fiscal 2017
Fiscal 2016
Net sales ....................................................................
Cost of goods sold.....................................................
Gross profit ...............................................................
Selling, general and administrative expenses ...........
Operating profit.........................................................
Interest and other income (expense), net...................
Earnings before income taxes ...................................
Provision for income taxes........................................
Net income ................................................................
100.0%
65.7%
34.3%
28.1%
6.2%
0.2%
6.4%
1.8%
4.6%
100.0%
66.6%
33.4%
28.2%
5.2%
0.0%
5.2%
2.3%
2.9%
100.0%
67.1%
32.9%
28.1%
4.8%
0.0%
4.8%
1.7%
3.1%
Fiscal 2018 Results Compared With Fiscal 2017
Net Sales
Fiscal 2018 was a 52-week period and fiscal 2017 was a 53-week period. Net sales for fiscal 2017 include an
additional week of sales, whereas comparable sales are calculated using the comparable sales for the comparable 52-
week period.
29
Net sales were $978.6 million for fiscal 2018 compared to $927.4 million for fiscal 2017, an increase of $51.2
million or 5.5%. The increase reflected a $50.4 million increase due to comparable sales and a $12.3 million
increase due to the net addition of 9 stores (made up of 5 new stores in North America, 7 new stores in Europe, and
1 new store in Australia offset by 4 store closures), partially offset by a decrease of $9.1 million related to the
additional week in the 53-week period and calendar shift in fiscal 2017. By region, North America sales increased
$41.6 million or 5.0% and other international sales increased $9.6 million or 9.7% during fiscal 2018 compared to
fiscal 2017.
The 5.6% increase in comparable sales was primarily driven by an increase in comparable transactions and an
increase in dollars per transaction. Dollars per transaction increased due to an increase in average unit retail,
partially offset by a decrease in units per transaction. Comparable sales were primarily driven by an increase in
men’s apparel followed by footwear, women’s apparel, and accessories partially offset by a decrease in hardgoods.
For information as to how we define comparable sales, see “General” above.
Gross Profit
Gross profit was $335.9 million for fiscal 2018 compared to $309.9 million for fiscal 2017, an increase of
$26.1 million, or 8.4%. As a percentage of net sales, gross profit increased 90 basis points in fiscal 2018 to 34.3%.
The increase was primarily driven by 50 basis points of leverage in our store occupancy costs, 40 basis points due to
lower inventory shrinkage, and 20 basis points due to higher product margin, partially offset by 20 basis points in
higher shipping costs.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $274.9 million for fiscal 2018 compared to
$261.1 million for fiscal 2017, an increase of $13.7 million, or 5.3%. SG&A expenses as a percent of net sales
decreased 10 basis points in fiscal 2018 to 28.1%. The decrease was primarily driven by 40 basis points impact of
leverage in our store costs partially offset by 20 basis points in corporate costs.
Net Income
Net income for fiscal 2018 was $45.2 million, or $1.79 per diluted share, compared with net income of $26.8
million, or $1.08 per diluted share, for fiscal 2017. Our effective income tax rate for fiscal 2018 was 27.5%
compared to 44.6% for fiscal 2017. The decrease in the effective tax rate for fiscal 2018 compared to fiscal 2017
was primarily related to a decrease of $8.7 million related to the changes in U.S. federal tax legislation that
decreased the U.S. federal statutory rate from 35.0% to 21.0% effective January 1, 2018, as well as fiscal 2017
included an additional $3.4 million or 7.0% related to the valuation allowance against our deferred tax assets in
Austria.
Fiscal 2017 Results Compared With Fiscal 2016
Net Sales
Fiscal 2017 was a 53-week period and fiscal 2016 was a 52-week period. Net sales for fiscal 2017 include an
additional week and comparable sales are calculated using the comparable sales for the comparable 53-week period.
Net sales were $927.4 million for fiscal 2017 compared to $836.3 million for fiscal 2016, an increase of $91.1
million or 10.9%. The increase reflected a $48.6 million increase due to comparable sales and a $23.6 million
increase due to the net addition of 13 stores (made up of 12 new stores in North America, 5 new stores in Europe,
and 2 new stores in Australia offset by 6 store closures). Net sales include $10.3 million related to the additional
week in the 53-week period and a $6.3 million increase due to changes in foreign currency rates. By region, North
America sales increased $73.9 million or 9.8% and other international sales increased $17.2 million or 20.8% during
fiscal 2017 compared to fiscal 2016.
30
The 5.9% increase in comparable sales was primarily driven by an increase in comparable transactions
partially offset by a decrease in dollars per transaction. Dollars per transaction decreased due to a decrease in units
per transaction partially offset by an increase in average unit retail. Comparable sales were primarily driven by an
increase in men’s apparel followed by women’s apparel. These increases were partially offset by decreases in
comparable sales primarily in accessories followed by hardgoods and then footwear. For information as to how we
define comparable sales, see “General” above.
Gross Profit
Gross profit was $309.9 million for fiscal 2017 compared to $275.0 million for fiscal 2016, an increase of
$34.9 million, or 12.7%. As a percentage of net sales, gross profit increased 50 basis points in fiscal 2017 to
33.4%. The increase was primarily driven by an 80 basis point impact due to leveraging of our store occupancy
costs, 30 basis points related to the recognition of deferred revenue due to changes in our STASH loyalty program
estimated redemption rate and 20 basis points on product margin. These were partially offset by 60 basis points in
higher inventory shrinkage and 10 basis points due to higher annual incentive compensation.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $261.1 million for fiscal 2017 compared to
$235.3 million for fiscal 2016, an increase of $25.9 million, or 11.0%. SG&A expenses as a percent of net sales
increased by 10 basis points in fiscal 2017 to 28.2%. The increase was primarily driven by 60 basis points from
higher annual incentive compensation partially offset by 50 basis points due to the leverage of store costs.
Net Income
Net income for fiscal 2017 was $26.8 million, or $1.08 per diluted share, compared with net income of $25.9
million, or $1.04 per diluted share, for fiscal 2016. Our effective income tax rate for fiscal 2017 was 44.6%
compared to 35.6% for fiscal 2016. The increase in the effective tax rate for fiscal 2017 compared to fiscal 2016
was primarily related to $3.4 million or 7.0% from the valuation allowance against our deferred tax assets in Austria.
Seasonality and Quarterly Results
As is the case with many retailers of apparel and related merchandise, our business is subject to seasonal
influences. As a result, we have historically experienced, and expect to continue to experience, seasonal and
quarterly fluctuations in our net sales and operating results. Our net sales and operating results are typically lower in
the first and second quarters of our fiscal year, while the back-to-school and winter holiday periods in our third and
fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales. Quarterly results
of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store
openings and the relative proportion of our new stores to mature stores, fashion trends and changes in consumer
preferences, calendar shifts of holiday or seasonal periods, changes in merchandise mix, timing of promotional
events, general economic conditions, competition and weather conditions.
31
The following table sets forth selected unaudited quarterly consolidated statements of income data. The
unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial
statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation
of the information shown. This information should be read in conjunction with our audited consolidated financial
statements and the notes thereto. The operating results for any fiscal quarter are not indicative of the operating
results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such
results will continue in the future.
Fiscal 2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(in thousands, except stores and per share data)
$ 218,971
Net sales ........................................................................... $ 206,287
72,535
62,587
Gross profit....................................................................... $
$
6,698
(1,709) $
Operating (loss) profit ...................................................... $
4,377
(2,607) $
Net (loss) income ............................................................. $
0.18
(0.10) $
Basic (loss) earnings per share ......................................... $
0.17
Diluted (loss) earnings per share ...................................... $
(0.10) $
703
Number of stores open at the end of the period ...............
6.3%
Comparable sales increase ...............................................
$ 248,795
86,873
$
18,394
$
13,823
$
0.55
$
0.55
$
703
4.8%
$ 304,564
$ 113,941
37,695
$
29,612
$
1.19
$
1.18
$
707
3.9%
700
8.3%
Fiscal 2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(in thousands, except stores and per share data)
$ 192,245
Net sales ........................................................................... $ 181,155
52,049
Gross profit....................................................................... $
59,796
$
(6,234) $
Operating (loss) profit ...................................................... $
(4,448) $
Net (loss) income ............................................................. $
(0.18) $
Basic (loss) earnings per share ......................................... $
Diluted (loss) earnings per share ...................................... $
(0.18) $
Number of stores open at the end of the period ...............
Comparable sales increase ...............................................
$ 245,756
83,367
$
18,808
(762) $
11,922
(608) $
0.48
(0.02) $
0.48
(0.02) $
694
7.9%
$ 308,245
$ 114,662
36,948
$
19,936
$
0.81
$
0.80
$
698
7.5%
692
4.7%
688
1.8%
Liquidity and Capital Resources
Our primary uses of cash are for operational expenditures, inventory purchases and capital investments,
including new stores, store remodels, store relocations, store fixtures and ongoing infrastructure improvements.
Additionally, we may use cash for the repurchase of our common stock. Historically, our main source of liquidity
has been cash flows from operations.
The significant components of our working capital are inventories and liquid assets such as cash, cash
equivalents, current marketable securities and receivables, reduced by accounts payable and accrued expenses. Our
working capital position benefits from the fact that we generally collect cash from sales to customers the same day
or within several days of the related sale, while we typically have longer payment terms with our vendors.
At February 2, 2019 and February 3, 2018, cash, cash equivalents and current marketable securities were
$165.3 million and $121.9 million. Working capital, the excess of current assets over current liabilities, was $234.1
million at the end of fiscal 2018, an increase of 30.1% from $179.9 million at the end of fiscal 2017. The increase in
cash, cash equivalents and current marketable securities in fiscal 2018 was due primarily to cash provided by
operating activities of $65.3 million, partially offset by $21.0 million of capital expenditures primarily related to the
opening of 9 new stores and 23 remodels and relocations.
32
The following table summarizes our cash flows from operating, investing and financing activities (in
thousands):
Fiscal 2018 Fiscal 2017 Fiscal 2016
Total cash provided by (used in)
Operating activities .............................................. $
Investing activities ...............................................
Financing activities ..............................................
65,319 $
(36,398)
120
65,514 $
(63,970)
1,273
48,458
(51,515)
(20,077)
Effect of exchange rate changes on cash and cash
equivalents..............................................................
Increase (decrease) in cash and cash equivalents ...... $
(660)
28,381 $
977
218
3,794 $ (22,916)
Operating Activities
Net cash provided by operating activities decreased by $0.2 million in fiscal 2018 to $65.3 million from $65.5
million in fiscal 2017. Net cash provided by operating activities increased by $17.0 million in fiscal 2017 to $65.5
million from $48.5 million in fiscal 2016. Our operating cash flows result primarily from cash received from our
customers, offset by cash payments we make for inventory, employee compensation, store occupancy expenses and
other operational expenditures. Cash received from our customers generally corresponds to our net sales. Because
our customers primarily use credit cards or cash to buy from us, our receivables from customers settle quickly.
Changes to our operating cash flows have historically been driven primarily by changes in operating income, which
is impacted by changes to non-cash items such as depreciation, amortization and accretion, deferred taxes, and
changes to the components of working capital.
Investing Activities
Net cash used in investing activities was $36.4 million in fiscal 2018 related to $21.0 million of capital
expenditures primarily for new store openings and existing store remodels or relocations and $15.4 million in net
purchases of marketable securities. Net cash used in investing activities was $64.0 million in fiscal 2017 related to
$39.9 million in net purchases of marketable securities and $24.1 million of capital expenditures primarily for new
store openings and existing store remodels or relocations. Net cash used in investing activities was $51.5 million in
fiscal 2016 related to $25.7 million in net purchases of marketable securities, $20.4 million of capital expenditures
primarily for new store openings and existing store remodels or relocations and $5.4 million for the acquisition of
Fast Times (net of cash acquired).
Financing Activities
Net cash provided by financing activities in fiscal 2018 was $0.1 million related to $0.9 million in proceeds
from issuance of stock-based awards partially offset by $0.2 million in payments on tax withholding obligation upon
vesting of restricted stock and $0.5 million of net payments on revolving credit facilities. Net cash provided by
financing activities in fiscal 2017 was $1.3 million related to $0.8 million of net proceeds on revolving credit
facilities and $0.7 million in proceeds from issuance of stock-based awards partially offset by $0.2 million in
payments on tax withholding obligation upon vesting of restricted stock. Net cash used in financing activities in
fiscal 2016 was $20.1 million related to $21.6 million cash paid for repurchase of common stock and $0.2 million in
payments on tax withholding obligation upon vesting of restricted stock partially offset by $1.0 million in proceeds
from issuance and exercises of stock-based award and $0.6 million of net proceeds on revolving credit facilities.
33
Sources of Liquidity
Our most significant sources of liquidity continue to be funds generated by operating activities and available
cash, cash equivalents and current marketable securities. We expect these sources of liquidity and available
borrowings under our revolving credit facility will be sufficient to meet our foreseeable cash requirements for
operations and planned capital expenditures for at least the next twelve months. Beyond this time frame, if cash
flows from operations are not sufficient to meet our capital requirements, then we will be required to obtain
additional equity or debt financing in the future. However, there can be no assurance that equity or debt financing
will be available to us when we need it or, if available, that the terms will be satisfactory to us and not dilutive to our
then-current shareholders.
As of February 2, 2019, we maintained a secured credit agreement with Wells Fargo Bank, N.A., which
provided us with a senior secured credit facility (“credit facility”) of up to $35.0 million. The credit facility is
available for working capital and other general corporate purposes. The credit facility provides for the issuance of
standby letters of credit in an amount not to exceed $17.5 million outstanding at any time and with a term not to
exceed 365 days. The commercial line of credit provides for the issuance of commercial letters of credit in an
amount not to exceed $10.0 million and with terms not to exceed 120 days. The credit facility will mature on
December 7, 2021. The credit facility is secured by a first-priority security interest in substantially all of the personal
property (but not the real property) of the borrowers and guarantors. Amounts borrowed under the credit facility
bear interest at an adjusted LIBOR rate plus a margin of 1.25% per annum. There were no borrowings or open
commercial letters of credit outstanding under the secured credit facility at February 2, 2019.
Capital Expenditures
Our capital requirements include construction and fixture costs related to the opening of new stores and
remodel and relocation expenditures for existing stores. Future capital requirements will depend on many factors,
including the pace of new store openings, the availability of suitable locations for new stores and the nature of
arrangements negotiated with landlords. In that regard, our net investment to open a new store has varied
significantly in the past due to a number of factors, including the geographic location and size of the new store, and
is likely to vary significantly in the future.
During fiscal 2018, we spent $21.0 million on capital expenditures, which consisted of $15.6 million of costs
related to investment in 9 new stores and 23 remodeled or relocated stores, $2.5 million associated with
improvements to our websites and the Customer Engagement Suite and $2.9 million in other improvements.
During fiscal 2017, we spent $24.1 million on capital expenditures, which consisted of $18.3 million of costs
related to investment in 19 new stores and 20 remodeled or relocated stores, $3.2 million associated with
improvements to our websites and the Customer Engagement Suite and $2.6 million in other improvements.
During fiscal 2016, we spent $20.4 million on capital expenditures, which consisted of $16.1 million of costs
related to investment in 28 new stores and 14 remodeled or relocated stores, $2.3 million associated with
improvements to our websites and the Customer Engagement Suite and $2.0 million in other improvements.
In fiscal 2019, we expect to spend approximately $21 million to $23 million on capital expenditures, a
majority of which will relate to leasehold improvements and fixtures for the approximately 14 new stores we plan to
open in fiscal 2019 and remodels or relocations of existing stores, as well as improvements to our websites and the
Customer Engagement Suite. There can be no assurance that the number of stores that we actually open in fiscal
2019 will not be different from the number of stores we plan to open, or that actual fiscal 2019 capital expenditures
will not differ from this expected amount.
34
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the
preparation of our consolidated financial statements, we are required to make assumptions and estimates about
future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the
related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and
other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On a
regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our
consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future
events and their effects cannot be determined with certainty, actual results could differ from our assumptions and
estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” in
the Notes to Consolidated Financial Statements found in Part IV Item 15 of this Form 10-K. We believe that the
following accounting estimates are the most critical to aid in fully understanding and evaluating our reported
financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to
make estimates about the effect of matters that are inherently uncertain.
35
Description
Judgments and Uncertainties
Effect If Actual Results Differ
From Assumptions
We have not made any material
changes in the accounting
methodology used to calculate our
write-down and shrinkage reserves in
the past three fiscal years. We do not
believe there is a reasonable likelihood
that there will be a material change in
the future estimates we use to calculate
our inventory reserves. However, if
actual results are not consistent with
our estimates, we may be exposed to
losses or gains that could be material.
A 10% decrease in the sales price of
our inventory at February 2, 2019
would have decreased net income by
$0.1 million in fiscal 2018.
A 10% increase in actual physical
inventory shrinkage rate at February 2,
2019 would have decreased net income
by $0.4 million in fiscal 2018.
We do not believe there is a reasonable
likelihood that there will be a material
change in the estimates or assumptions
we use to calculate long-lived asset
impairment losses. However, if actual
results are not consistent with our
estimates and assumptions, our
operating results could be adversely
affected. Declines in projected cash
flow of the assets could result in
impairment.
Although management believes that
the current useful life estimates
assigned to our fixed assets are
reasonable, factors could cause us to
change our estimates, thus affecting the
future calculation of depreciation.
Valuation of Merchandise Inventories
We value our inventory at the lower of
average cost or net realizable value through
the establishment of write-down and
inventory loss reserves.
Our write-down reserve represents the excess
of the carrying value over the amount we
expect to realize from the ultimate sales or
other disposal of the inventory. Write-downs
establish a new cost basis for our inventory.
Subsequent changes in facts or circumstances
do not result in the restoration of previously
recorded write-downs or an increase in that
newly established cost basis.
Our inventory loss reserve represents
anticipated physical inventory losses
(“shrinkage reserve”) that have occurred
since the last physical inventory.
Valuation of Long-Lived Assets
We review the carrying value of our long-
lived assets for impairment whenever events
or changes in circumstances indicate that the
carrying value of such asset or asset group
may not be recoverable.
Recoverability of assets to be held and used is
determined by a comparison of the carrying
amount of an asset to future undiscounted net
cash flows expected to be generated by the
asset. If such assets are considered impaired,
the impairment recognized is measured by
comparing the projected discounted cash flow
of the asset to the asset carrying value.
The actual economic lives of our fixed assets
may be different from our estimated useful
lives, thereby resulting in a different carrying
value. These evaluations could result in a
change in the depreciable lives of these assets
and therefore our depreciation expense in
future periods.
Our write-down reserve contains
uncertainties because the calculation
requires management to make
assumptions based on the current rate
of sales, the age and profitability of
inventory and other factors.
Our shrinkage reserve contains
uncertainties because the calculation
requires management to make
assumptions and to apply judgment
regarding a number of factors,
including historical percentages that
can be affected by changes in
merchandise mix and changes in
actual shrinkage trends.
Events that may result in an
impairment include the decision to
close a store or facility or a significant
decrease in the operating performance
of a long-lived asset group. Our
impairment calculations contain
uncertainties because they require
management to make assumptions and
to apply judgment to estimate future
cash flows and asset fair values,
including forecasting future sales,
gross profit and operating expenses.
In addition to historical results,
current trends and initiatives, and
long-term macro-economic and
industry factors are qualitatively
considered. Additionally,
management seeks input from store
operations related to local economic
conditions, including the impact of
closures of selected co-tenants who
occupy the mall.
Our fixed assets accounting
methodology contains uncertainties
because it requires management to
make estimates with respect to the
useful lives of our fixed assets that we
believe are reasonable.
36
Description
Judgments and Uncertainties
Effect If Actual Results Differ
From Assumptions
Revenue Recognition
Revenue is recognized upon purchase at our
retail store locations. For our ecommerce
sales, revenue is recognized upon shipment to
the customer. Revenue is recorded net of
sales returns and deductions for promotions.
Revenue is not recorded on the sale of gift
cards. We record the sale of gift cards as a
current liability and recognize revenue when
a customer redeems a gift card. Additionally,
the portion of gift cards that will not be
redeemed (“gift card breakage”) is recognized
in proportion of the patterns used by the
customer based on our historical redemption
patterns.
Our revenue recognition accounting
methodology contains uncertainties
because it requires management to
make assumptions regarding future
sales returns and the amount and
timing of gift cards projected to be
redeemed by gift card recipients. Our
estimate of the amount and timing of
sales returns and gift cards to be
redeemed is based primarily on
historical experience.
Accounting for Income Taxes
As part of the process of preparing the
consolidated financial statements, income
taxes are estimated for each of the
jurisdictions in which we operate. This
process involves estimating actual current tax
exposure together with assessing temporary
differences resulting from differing treatment
of items for tax and accounting purposes.
These differences result in deferred tax assets
and liabilities, which are included on the
consolidated balance sheets. Valuation
allowances are established when necessary to
reduce deferred tax assets to the amount
expected to be realized.
Significant judgment is required in
evaluating our tax positions and
determining our provision for income
taxes. During the ordinary course of
business, there are many transactions
and calculations for which the
ultimate tax determination is
uncertain. For example, our effective
tax rates could be adversely affected
by earnings being lower than
anticipated in jurisdictions where we
have lower statutory rates and higher
than anticipated in jurisdictions where
we have higher statutory rates.
We regularly evaluate the likelihood of
realizing the benefit for income tax positions
we have taken in various federal, state and
foreign filings by considering all relevant
facts, circumstances and information
available to us. If we believe it is more likely
than not that our position will be sustained,
we recognize a benefit at the largest amount
that we believe is cumulatively greater than
50% likely to be realized.
The assessment of whether we will
realize the value of our deferred tax
assets requires estimates and
judgments related to amount and
timing of future taxable income.
Actual results may differ from those
estimates.
Additionally, changes in the relevant
tax, accounting and other laws,
regulations, principles and
interpretations may adversely affect
financial results.
37
We have not made any material
changes in the accounting
methodology used to measure future
sales returns in the past three fiscal
years.
The adoption of ASC 606 resulted in a
change in methodology for our gift
card breakage for fiscal 2018. This
change in methodology did not have a
material impact on the financial
statements.
We do not believe there is a reasonable
likelihood that there will be a material
change in the future estimates or
assumptions we use to recognize
revenue. However, if actual results are
not consistent with our estimates or
assumptions, we may be exposed to
losses or gains that could be material.
A 10% increase in our sales return
reserve at February 2, 2019 would
have decreased net income by $0.2
million in fiscal 2018.
Although management believes that
the income tax related judgments and
estimates are reasonable, actual results
could differ and we may be exposed to
losses or gains that could be material.
At February 2, 2019 and February 3,
2018, we had valuation allowances on
our deferred tax assets of $5.2 million
and $3.6 million, respectively.
Significant changes in performance or
estimated taxable income may result in
a change to our valuation allowance.
Upon income tax audit, any
unfavorable tax settlement generally
would require use of our cash and may
result in an increase in our effective
income tax rate in the period of
resolution. A favorable tax settlement
may be recognized as a reduction in
our effective income tax rate in the
period of resolution.
Description
Judgments and Uncertainties
Effect If Actual Results Differ
From Assumptions
Accounting for Contingencies
We are subject to various claims and
contingencies related to lawsuits, insurance,
regulatory and other matters arising out of the
normal course of business. We accrue a
liability if the likelihood of an adverse
outcome is probable and the amount is
estimable. If the likelihood of an adverse
outcome is only reasonably possible (as
opposed to probable), or if an estimate is not
determinable, we provide disclosure of a
material claim or contingency.
Goodwill and Indefinite-lived Intangible
Assets
Significant judgment is required in
evaluating our claims and
contingencies, including determining
the probability that a liability has been
incurred and whether such liability is
reasonably estimable. The estimated
accruals for claims and contingencies
are made based on the best
information available, which can be
highly subjective.
Although management believes that
the contingency related judgments and
estimates are reasonable, our accrual
for claims and contingencies could
fluctuate as additional information
becomes known, thereby creating
variability in our results of operations
from period to period. Additionally,
actual results could differ and we may
be exposed to losses or gains that could
be material.
We assess goodwill and indefinite-lived
intangible assets for impairment on an annual
basis or more frequently if indicators of
impairment arise. We perform this analysis at
the reporting unit level.
The goodwill and indefinite-lived
intangible assets impairment tests
require management to make
assumptions and judgments.
We have an option to first perform a
qualitative assessment to determine whether it
is more likely than not that the fair value of a
reporting unit is less than its carrying amount.
If we choose not to perform the qualitative
test or we determine that it is more likely than
not that the fair value of the reporting unit is
less than the carrying amount, we perform a
quantitative two-step impairment test. The
first step compares the carrying value of the
reporting unit to its estimated fair value,
which is based on the perspective of a
market-participant. If the fair value of the
reporting unit is lower than the carrying
value, then a second step is performed to
quantify the amount of the impairment.
We test our indefinite-lived intangible assets
by comparing the carry value to the estimated
fair value. An impairment loss is recorded for
the amount in which the carrying value
exceeds the estimated fair value.
Our quantitative goodwill analysis of
fair value is determined using a
combination of the income and market
approaches. Key assumptions in the
income approach include estimating
future cash flows, long-term growth
rates and weighted average cost of
capital. Our ability to realize the
future cash flows used in our fair
value calculations is affected by
factors such as changes in economic
conditions, operating performance and
our business strategies. Key
assumptions in the market approach
include identifying companies and
transactions with comparable business
factors, such as earnings growth,
profitability, business and financial
risk.
The fair value of the trade names and
trademarks is determined using the
relief from royalty method, which
requires assumptions including
forecasting future sales, discount rates
and royalty rates.
Based on the results of our annual
impairment test for goodwill and
indefinite-lived intangible assets, no
impairment was recorded. As of
November 4, 2018, the most recent
impairment assessment date, the
estimated fair value of our Blue
Tomato reporting unit exceeded the
carrying value by 9.7%. As of
February 2, 2019, the Blue Tomato
reporting unit had $43.2 million of
goodwill. The remaining reporting
units had a fair value substantially in
excess of the carrying value. If actual
results are not consistent with our
estimates or assumptions, or there are
significant changes in any of these
estimates, projections and assumptions,
could have a material effect of the fair
value of these assets in future
measurement periods and result in an
impairment, which could materially
affect our results of operations.
38
Contractual Obligations and Commercial Commitments
There were no material changes outside the ordinary course of business in our contractual obligations during
fiscal 2018. The following table summarizes the total amount of future payments due under our contractual
obligations at February 2, 2019 (in thousands):
Total
Fiscal 2019 Fiscal 2021 Fiscal 2023 Thereafter
Fiscal 2020
and
Fiscal 2022
and
Operating lease
obligations (1).......................... $
Purchase obligations (2) .............
Total............................................ $
391,301 $
216,587
607,888 $
69,293 $
214,866
284,159 $
127,326 $
1,721
129,047 $
100,658 $
—
100,658 $
94,024
—
94,024
(1) Amounts do not include contingent rent and real estate taxes, insurance, common area maintenance charges
and other executory costs obligations. See Note 10, “Commitments and Contingencies,” in the Notes to
Consolidated Financial Statements found in Part IV Item 15 of the Form 10-K, for additional information
related to our operating leases.
(2) We have an option to cancel these commitments with no notice prior to shipment, except for certain private
label, packaging supplies and international purchase orders in which we are obligated to repay contractual
amounts upon cancellation.
Off-Balance Sheet Arrangements
At February 2, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of
Regulation S-K.
Impact of Inflation/Deflation
We do not believe that inflation has had a material impact on our net sales or operating results for the past
three fiscal years. However, substantial increases in costs, including the price of raw materials, labor, energy and
other inputs used in the production of our merchandise or the potential change in regulatory environment, could
have a significant impact on our business and the industry in the future. Additionally, while deflation could
positively impact our merchandise costs, it could have an adverse effect on our average unit retail price, resulting in
lower sales and operating results.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements
found in Part IV Item 15 of this Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our earnings are affected by changes in market interest rates as a result of our short-term and long-term
marketable securities, which are primarily invested in state and local municipal securities and variable-rate demand
notes, which have long-term nominal maturity dates but feature variable interest rates that reset at short-term
intervals. If our current portfolio average yield rate decreased by 10% in fiscal 2018, our net income would have
decreased by $0.2 million. This amount is determined by considering the impact of the hypothetical yield rates on
our cash, cash equivalents, short-term marketable securities and assumes no changes in our investment structure.
During different times of the year, due to the seasonality of our business, we may borrow under our revolving
credit facility. To the extent we borrow under this revolving credit facility, we are exposed to the market risk related
to changes in interest rates. At February 2, 2019, we had no borrowings outstanding under the secured revolving
credit facility.
39
Foreign Exchange Rate Risk
Our international subsidiaries operate with functional currencies other than the U.S. dollar, including the
Canadian dollar, Euro, Australian dollar and Swiss franc. Therefore, we must translate revenues, expenses, assets
and liabilities from functional currencies into U.S. dollars at exchange rates in effect during, or at the end of, the
reporting period. As a result, the fluctuation in the value of the U.S. dollar against other currencies affects the
reported amounts of revenues, expenses, assets and liabilities. Assuming a 10% change in foreign exchange rates in
fiscal 2018 our net income would have decreased or increased by $0.7 million. As we expand our international
operations, our exposure to exchange rate fluctuations will continue to increase. To date, we have not used
derivatives to manage foreign currency exchange risk.
We import merchandise from foreign countries. As a result, any significant or sudden change in the financial,
banking or currency policies and practices of these countries could have a material adverse impact on our financial
position, results of operations and cash flows.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is set forth in “Index to the Consolidated Financial Statements,” found in
Part IV Item 15 of this Form 10-K.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Securities Exchange Act Rule 13a-15(e)). Based on this evaluation, our CEO and CFO concluded that, as
of February 2, 2019, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over
financial reporting (as defined in Securities Exchange Act Rule 13a-15(f)) during the quarter ended February 2,
2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Annual Report on Internal Control over Financial Reporting. The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
This process includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements, and can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Furthermore, because of changes in conditions, the
effectiveness of internal control may vary over time.
40
The Company’s management, with the participation of the Chief Executive Officer and Chief Financial
Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of February 2, 2019.
Management’s assessment was based on criteria described in the Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management concluded that the Company’s internal control over financial reporting was effective as of February 2,
2019.
The effectiveness of the Company’s internal control over financial reporting as of February 2, 2019 has been
audited by Moss Adams LLP, the Company’s independent registered public accounting firm, as stated in their
report, which is included below.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Zumiez Inc.
Opinion on Internal Control over Financial Reporting
We have audited Zumiez Inc.’s (the “Company”) internal control over financial reporting as of February 2, 2019,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of February 2, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of Zumiez Inc. as of February 2, 2019 and February 3, 2018,
the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash
flows for each of the three years in the period ended February 2, 2019, and the related notes (collectively referred to
as the “consolidated financial statements”) and our report dated March 18, 2019 expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
42
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Moss Adams LLP
Seattle, Washington
March 18, 2019
Item 9B. OTHER INFORMATION
None.
43
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our directors and nominees for directorship is presented under the headings “Election of
Directors,” in our definitive proxy statement for use in connection with our 2019 Annual Meeting of Shareholders
(the “Proxy Statement”) that will be filed within 120 days after our fiscal year ended February 2, 2019 and is
incorporated herein by this reference thereto. Information concerning our executive officers is set forth under the
heading “Executive Officers” in our Proxy Statement, and is incorporated herein by reference thereto. Information
regarding compliance with Section 16(a) of the Exchange Act, our code of conduct and ethics and certain
information related to the Company’s Audit Committee, Compensation Committee and Governance Committee is
set forth under the heading “Corporate Governance” in our Proxy Statement, and is incorporated herein by reference
thereto.
Item 11.
EXECUTIVE COMPENSATION
Information regarding the compensation of our directors and executive officers and certain information related
to the Company’s Compensation Committee is set forth under the headings “Executive Compensation,” “Director
Compensation,” “Compensation Discussion and Analysis,” “Report of the Compensation Committee of the Board of
Directors” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement, and is
incorporated herein by this reference thereto.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management is set forth under
the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan
Information” in our Proxy Statement, and is incorporated herein by this reference thereto.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information regarding certain relationships and related transactions and director independence is presented
under the heading “Corporate Governance” in our Proxy Statement, and is incorporated herein by this reference
thereto.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accounting fees and services is presented under the heading “Fees Paid to
Independent Registered Public Accounting Firm for Fiscal 2018 and 2017” in our Proxy Statement, and is
incorporated herein by this reference thereto.
44
PART IV
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules:
All financial statement schedules are omitted because the required information is presented either in the
consolidated financial statements or notes thereto, or is not applicable, required or material.
(3)
Exhibits included or incorporated herein:
See Exhibit Index.
45
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ..............................................................................
Consolidated Balance Sheets .............................................................................................................................
Consolidated Statements of Income...................................................................................................................
Consolidated Statements of Comprehensive Income.........................................................................................
Consolidated Statements of Changes in Shareholders’ Equity ..........................................................................
Consolidated Statements of Cash Flows ............................................................................................................
Notes to Consolidated Financial Statements......................................................................................................
47
48
49
50
51
52
53
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Zumiez Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Zumiez Inc. (the “Company”) as of February 2,
2019 and February 3, 2018, the related consolidated statements of income, comprehensive income, changes in
shareholders’ equity, and cash flows for each of the three years in the period ended February 2, 2019, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as of February
2, 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period
ended February 2, 2019, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of February 2, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 18, 2019 expressed an unqualified opinion
on the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Moss Adams LLP
Seattle, Washington
March 18, 2019
We have served as the Company’s auditor since 2006.
47
ZUMIEZ INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
February 2,
2019
February 3,
2018
Assets
Current assets
Cash and cash equivalents ......................................................................................... $
Marketable securities .................................................................................................
Receivables ................................................................................................................
Inventories..................................................................................................................
Prepaid expenses and other current assets .................................................................
Total current assets ............................................................................................
Fixed assets, net .........................................................................................................
Goodwill ....................................................................................................................
Intangible assets, net ..................................................................................................
Deferred tax assets, net ..............................................................................................
Other long-term assets ...............................................................................................
Total long-term assets ........................................................................................
Total assets .......................................................................................................... $
Liabilities and Shareholders’ Equity
Current liabilities
Trade accounts payable.............................................................................................. $
Accrued payroll and payroll taxes .............................................................................
Income taxes payable.................................................................................................
Deferred rent and tenant allowances..........................................................................
Other liabilities...........................................................................................................
Total current liabilities ......................................................................................
Long-term deferred rent and tenant allowances.........................................................
Other long-term liabilities..........................................................................................
Total long-term liabilities ..................................................................................
Total liabilities ....................................................................................................
Commitments and contingencies (Note 10)
Shareholders’ equity
Preferred stock, no par value, 20,000 shares authorized; none issued and
outstanding..............................................................................................................
Common stock, no par value, 50,000 shares authorized; 25,521 shares issued
and outstanding at February 2, 2019 and 25,249 shares issued
and outstanding at February 3, 2018.......................................................................
Accumulated other comprehensive (loss) income .....................................................
Retained earnings.......................................................................................................
Total shareholders’ equity .................................................................................
Total liabilities and shareholders’ equity......................................................... $
52,422 $
112,912
17,776
129,268
14,797
327,175
120,503
58,813
15,260
5,259
7,180
207,015
534,190 $
35,293 $
21,015
5,817
7,489
23,494
93,108
37,076
3,550
40,626
133,734
24,041
97,864
17,027
125,826
14,405
279,163
128,852
62,912
16,696
4,174
7,713
220,347
499,510
37,861
20,650
5,796
8,073
26,867
99,247
39,275
5,073
44,348
143,595
—
—
153,066
(9,224)
256,614
400,456
534,190 $
146,523
35
209,357
355,915
499,510
See accompanying notes to consolidated financial statements
48
ZUMIEZ INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Net sales ......................................................................................... $
Cost of goods sold ..........................................................................
Gross profit ...................................................................................
Selling, general and administrative expenses.................................
Operating profit............................................................................
Interest income, net ........................................................................
Other (expense) income, net...........................................................
Earnings before income taxes......................................................
Provision for income taxes .............................................................
Net income..................................................................................... $
Basic earnings per share ................................................................. $
Diluted earnings per share.............................................................. $
Weighted average shares used in computation of earnings
per share:
February 2,
2019
978,617
642,681
335,936
274,858
61,078
1,692
(440)
62,330
17,125
45,205
1.81
1.79
Fiscal Year Ended
February 3,
2018
927,401 $
617,527
309,874
261,114
48,760
495
(852)
48,403
21,601
26,802 $
1.09 $
1.08 $
$
$
January 28,
2017
836,268
561,266
275,002
235,259
39,743
32
449
40,224
14,320
25,904
1.05
1.04
Basic..........................................................................................
Diluted ......................................................................................
24,936
25,212
24,679
24,878
24,727
24,908
See accompanying notes to consolidated financial statements
49
ZUMIEZ INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income...................................................................................... $
Other comprehensive (loss) income, net of tax and
reclassification adjustments:
Foreign currency translation......................................................
Net change in unrealized gain (loss) on available-for-sale
debt securities.........................................................................
Other comprehensive (loss) income, net ........................................
Comprehensive income ................................................................ $
February 2,
2019
Fiscal Year Ended
February 3,
2018
January 28,
2017
45,205 $
26,802 $
25,904
(9,379)
16,583
(1,338)
120
(9,259)
35,946 $
(60)
16,523
43,325 $
97
(1,241)
24,663
See accompanying notes to consolidated financial statements
50
ZUMIEZ INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands)
Accumulated
Other
Common Stock
Shares
Amount
Comprehensive Retained
Income (Loss) Earnings
Total
—
—
432
—
(1,195)
Balance at January 30, 2016 ................................ 25,708 $ 135,013 $
—
Net income..............................................................
—
Other comprehensive loss, net................................
Issuance and exercise of stock-based awards,
1,393
including net tax loss of $887..............................
4,578
Stock-based compensation expense........................
—
Repurchase of common stock.................................
Balance at January 28, 2017 ................................ 24,945 $ 140,984 $
—
Net income..............................................................
—
Other comprehensive income, net ..........................
507
Issuance and exercise of stock-based awards .........
Stock-based compensation expense........................
5,032
Balance at February 3, 2018 ................................ 25,249 $ 146,523 $
—
Net income..............................................................
—
Other comprehensive loss, net................................
672
Issuance and exercise of stock-based awards .........
Stock-based compensation expense........................
5,871
Cumulative effect of accounting
—
change (Note 2)....................................................
Balance at February 2, 2019 ................................ $ 25,521 $ 153,066 $
—
—
304
—
—
—
272
—
—
(15,247) $ 177,191 $ 296,957
— 25,904 25,904
(1,241)
(1,241)
—
1,393
—
—
—
4,578
—
— (20,540) (20,540)
(16,488) $ 182,555 $ 307,051
— 26,802 26,802
— 16,523
16,523
507
—
—
—
5,032
—
35 $ 209,357 $ 355,915
— 45,205 45,205
(9,259)
672
5,871
(9,259)
—
—
—
—
—
—
2,052
(9,224) $ 256,614 $ 400,456
2,052
See accompanying notes to consolidated financial statements
51
ZUMIEZ INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income...................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion .......................................
Deferred taxes.................................................................................
Stock-based compensation expense................................................
Other ...............................................................................................
Changes in operating assets and liabilities:
Receivables ...............................................................................
Inventories.................................................................................
Prepaid expenses and other current assets.................................
Trade accounts payable .............................................................
Accrued payroll and payroll taxes.............................................
Income taxes payable ................................................................
Deferred rent and tenant allowances .........................................
Other liabilities..........................................................................
Net cash provided by operating activities...................................
Cash flows from investing activities:
Additions to fixed assets.................................................................
Acquisitions, net of cash acquired ..................................................
Purchases of marketable securities and other investments .............
Sales and maturities of marketable securities and other
investments ..................................................................................
Net cash used in investing activities ............................................
Cash flows from financing activities:
Proceeds from revolving credit facilities........................................
Payments on revolving credit facilities...........................................
Repurchase of common stock.........................................................
Proceeds from issuance and exercise of stock-based awards .........
Payments for tax withholdings on equity awards ...........................
Net cash provided by (used in) financing activities ...................
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents................
Cash and cash equivalents, beginning of period ........................
Cash and cash equivalents, end of period................................... $
Supplemental disclosure on cash flow information:
Cash paid during the period for income taxes ................................ $
Accrual for purchases of fixed assets .............................................
February 2,
2019
Fiscal Year Ended
February 3,
2018
January 28,
2017
45,205 $
26,802 $
25,904
27,316
(1,809)
5,871
2,326
(2,002)
(6,222)
(735)
(2,374)
628
780
(2,420)
(1,245)
65,319
(21,028)
—
(148,646)
133,276
(36,398)
27,288
3,282
5,032
2,344
(3,216)
(14,848)
(960)
11,584
5,359
3,575
(2,494)
1,766
65,514
(24,062)
—
(129,036)
89,128
(63,970)
34,629
(35,181)
—
899
(227)
120
(660)
28,381
24,041
52,422 $
21,466
(20,700)
—
698
(191)
1,273
977
3,794
20,247
24,041 $
27,916
(2,555)
4,578
1,564
413
(7,984)
(1,793)
3,261
2,313
(3,713)
(2,673)
1,227
48,458
(20,400)
(5,395)
(86,826)
61,106
(51,515)
23,079
(22,429)
(21,607)
1,014
(134)
(20,077)
218
(22,916)
43,163
20,247
18,345 $
1,805
14,851 $
1,300
20,462
1,191
See accompanying notes to consolidated financial statements
52
ZUMIEZ INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
Nature of Business—Zumiez Inc., including its wholly-owned subsidiaries, (“Zumiez”, the “Company,”
“we,” “us,” “its” and “our”) is a leading specialty retailer of apparel, footwear, accessories and hardgoods for young
men and women who want to express their individuality through the fashion, music, art and culture of action sports,
streetwear and other unique lifestyles. At February 2, 2019, we operated 707 stores; 608 in the United States
(“U.S.”), 50 in Canada, 41 in Europe and 8 in Australia. We operate under the names Zumiez, Blue Tomato and
Fast Times. Additionally, we operate ecommerce websites at zumiez.com, zumiez.ca, blue-tomato.com and
fasttimes.com.au.
Fiscal Year—We use a fiscal calendar widely used by the retail industry that results in a fiscal year consisting
of a 52- or 53-week period ending on the Saturday closest to January 31. Each fiscal year consists of four 13-week
quarters, with an extra week added to the fourth quarter every five or six years. The fiscal years ended February 2,
2019 and January 28, 2017 were 52-week periods. The fiscal year ended February 3, 2018 was a 53-week period.
Basis of Presentation—The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The
consolidated financial statements include the accounts of Zumiez Inc. and its wholly-owned subsidiaries. All
significant intercompany transactions and balances are eliminated in consolidation.
2. Summary of Significant Accounting Policies
Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and
expenses during the reporting period. These estimates can also affect supplemental information disclosed by us,
including information about contingencies, risk and financial condition. Actual results could differ from these
estimates and assumptions.
Fair Value of Financial Instruments—We disclose the estimated fair value of our financial instruments.
Financial instruments are generally defined as cash, evidence of ownership interest in an entity or a contractual
obligation that both conveys to one entity a right to receive cash or other financial instruments from another entity
and imposes on the other entity the obligation to deliver cash or other financial instruments to the first entity. Our
financial instruments, other than those presented in Note 11, “Fair Value Measurements,” include cash and cash
equivalents, receivables, payables and other liabilities. The carrying amounts of cash and cash equivalents,
receivables, payables and other liabilities approximate fair value because of the short-term nature of these
instruments. Our policy is to present transfers into and transfers out of hierarchy levels as of the actual date of the
event or change in circumstances that caused the transfer.
Cash and Cash Equivalents—We consider all highly liquid investments with original maturity of three
months or less when purchased to be cash equivalents.
Concentration of Risk—We maintain our cash and cash equivalents in accounts with major financial
institutions in the form of demand deposits, money market accounts, and corporate debt securities. Deposits in these
financial institutions may exceed the amount of federal deposit insurance provided on such deposits.
Marketable Securities—Our marketable securities primarily consist of U.S treasury and government agency
securities, corporate debt securities, state and local municipal securities and variable-rate demand notes. Variable-
rate demand notes are considered highly liquid. Although the variable-rate demand notes have long-term nominal
maturity dates, the interest rates generally reset weekly. Despite the long-term nature of the underlying securities of
the variable-rate demand notes, we have the ability to quickly liquidate these securities, which have an embedded
put option that allows the bondholder to sell the security at par plus accrued interest.
53
Investments are considered to be impaired when a decline in fair value is determined to be other-than-
temporary. If the cost of an investment exceeds its fair value, we evaluate information about the underlying
investment that is publicly available such as analyst reports, applicable industry data and other pertinent information
and assess our intent and ability to hold the security. For fixed-income securities, we also evaluate whether we have
plans to sell the security or it is more likely than not we will be required to sell the security before recovery. The
investment would be written down to its fair value at the time the impairment is deemed to have occurred and a new
cost basis is established. Future adverse changes in market conditions, poor operating results of underlying
investments or other factors could result in losses that may not be reflected in an investment’s current carrying
value, possibly requiring an impairment charge in the future.
Inventories—Merchandise inventories are valued at the lower of cost or net realizable value. The cost of
merchandise inventories are based upon an average cost methodology. Merchandise inventories may include items
that have been written down to our best estimate of their net realizable value. Our decisions to write-down our
merchandise inventories are based on their current rate of sale, the age of the inventory, the profitability of the
inventory and other factors. The inventory related to this reserve is not marked up in subsequent periods. The
inventory reserve includes inventory whose net realizable value is below cost and an estimate for inventory
shrinkage. Shrinkage refers to a reduction in inventory due to shoplifting, employee theft and other matters. We
estimate an inventory shrinkage reserve for anticipated losses at February 2, 2019 and February 3, 2018 in the
amounts of $4.6 million and $5.1 million.
Fixed Assets—Fixed assets primarily consist of leasehold improvements, fixtures, land, buildings, computer
equipment, software and store equipment. Fixed assets are stated at cost less accumulated depreciation utilizing the
straight-line method over the assets’ estimated useful lives. The useful lives of our major classes of fixed assets are
as follows:
Leasehold improvements
Fixtures
Buildings, land and building and land improvements
Computer equipment, software, store equipment & other 3 to 5 years
Lesser of 10 years or the term of the lease
3 to 7 years
15 to 39 years
The cost and related accumulated depreciation of assets sold or otherwise disposed of is removed from fixed
assets and the related gain or loss is recorded in selling, general and administrative expenses on the consolidated
statements of income.
Asset Retirement Obligations—An asset retirement obligation (“ARO”) represents a legal obligation
associated with the retirement of a tangible long-lived asset that is incurred upon the acquisition, construction,
development or normal operation of that long-lived asset. Our AROs are associated with leasehold improvements
that, at the end of a lease, we are contractually obligated to remove in order to comply with certain lease agreements.
The ARO balance at February 2, 2019 and February 3, 2018 is $3.0 million and $2.8 million and is recorded in other
liabilities and other long-term liabilities on the consolidated balance sheets and will be subsequently adjusted for
changes in fair value. The associated estimated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset and depreciated over its useful life.
Valuation of Long-Lived Assets—We review the carrying value of long-lived assets or asset groups (defined
as a store, corporate facility or distribution center) for impairment when events or changes in circumstances indicate
that the carrying values may not be recoverable. Recoverability of assets to be held and used is determined by a
comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered impaired, the impairment recognized is measured by comparing
the fair value of the assets or asset group to the carrying values. The estimation of future cash flows from operating
activities requires significant judgments of factors that include forecasting future sales, gross profit and operating
expenses. In addition to historical results, current trends and initiatives, long-term macro-economic and industry
factors are qualitatively considered. Additionally, management seeks input from store operations related to local
economic conditions. Impairment charges are included in selling, general and administrative expenses on the
consolidated statements of income.
54
Goodwill—Goodwill represents the excess of purchase price over the fair value of acquired tangible and
identifiable intangible net assets. We test goodwill for impairment on an annual basis or more frequently if
indicators of impairment are present. We perform our annual impairment measurement test on the first day of the
fourth quarter. Events that may trigger an early impairment review include significant changes in the current
business climate, future expectations of economic conditions, declines in our operating results of our reporting units,
or an expectation that the carrying amount may not be recoverable.
We have an option to test goodwill for impairment by first performing a qualitative assessment to determine
whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. If we
choose not to perform the qualitative test or we determine that it is more likely than not that the fair value of the
reporting unit is less than the carrying amount, we perform a quantitative two-step impairment test. The first step
compares the carrying value of the reporting unit to its estimated fair value, which is based on the perspective of a
market-participant. If the fair value of the reporting unit is lower than the carrying value, then a second step is
performed to quantify the amount of the impairment. The second step includes estimating the fair value of the
reporting unit by taking the net assets of the reporting unit as if the reporting unit had been acquired in a business
combination. Then, the implied fair value of the reporting unit’s goodwill is compared to the carrying amount of that
goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, we
recognize an impairment loss in an amount equal to the excess, not to exceed the carrying amount.
We generally determine the fair value of each of our reporting units based on a combination of the income
approach and the market valuation approaches. Key assumptions in the income approach include estimating future
cash flows, long-term growth rates and weighted average cost of capital. Our ability to realize the future cash flows
used in our fair value calculations is affected by factors such as changes in economic conditions, operating
performance and our business strategies. Key assumptions in the market approaches include identifying companies
and transactions with comparable business factors, such as earnings growth, profitability, business and financial risk.
Intangible Assets—Our intangible assets consist of trade names and trademarks with indefinite lives and
certain definite-lived intangible assets. We test our indefinite-lived intangible assets for impairment on an annual
basis, or more frequently if indicators of impairment are present. We test our indefinite-lived assets by estimating
the fair value of the asset and comparing that to the carrying value, an impairment loss is recorded for the amount
that carrying value exceeds the estimated fair value. The fair value of the trade names and trademarks is determined
using the relief from royalty method. This method assumes that the trade name and trademarks have value to the
extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. The
assumptions used in this method requires management judgment and estimates in forecasting future revenue growth,
discount rates, and royalty rates.
Definite-lived intangible assets, which consist of developed technology, customer relationships and non-
compete agreements, are amortized using the straight-line method over their estimated useful lives. Additionally,
we test the definite-lived intangible assets when facts and circumstances indicate that the carrying values may not be
recoverable. We first assess the recoverability of our definite-lived intangible assets by comparing the undiscounted
cash flows of the definite-lived asset less its carrying value. If the undiscounted cash flows are less than the carrying
value, we then determine the estimated fair value of our definite-lived asset by taking the estimated future operating
cash flows derived from the operation to which the asset relates over its remaining useful life, using a discounted
cash flow analysis and comparing it to the carrying value. Any impairment would be measured as the difference
between the carrying amount and the estimated fair value. Changes in any of these estimates, projections and
assumptions could have a material effect of the fair value of these assets in future measurement periods and result in
an impairment which could materially affect our results of operations.
55
Deferred Rent, Rent Expense and Tenant Allowances—We lease our stores and certain corporate and other
operating facilities under operating leases. A majority of our leases provide for ongoing co-tenancy requirements or
early cancellation clauses that would further lower rental rates, or permit lease terminations, or both, in the event
that co-tenants cease to operate for specific periods or if certain sales levels are not met in specific periods. Most of
the store leases require payment of a specified minimum rent and a contingent rent based on a percentage of the
store’s net sales in excess of a specified threshold, as well as real estate taxes, insurance, common area maintenance
charges and other executory costs. Most of the lease agreements have defined escalating rent provisions, which are
straight-lined over the term of the related lease. We recognize rent expense over the term of the lease, plus the
construction period prior to occupancy of the retail location. For certain locations, we receive tenant allowances and
report these amounts as a liability, which is amortized as a reduction to rent expense over the term of the lease.
Claims and Contingencies—We are subject to various claims and contingencies related to lawsuits,
insurance, regulatory and other matters arising out of the normal course of business. We accrue a liability if the
likelihood of an adverse outcome is probable and the amount is estimable. If the likelihood of an adverse outcome is
only reasonably possible (as opposed to probable), or if an estimate is not determinable, we provide disclosure of a
material claim or contingency.
Revenue Recognition—Revenue is recognized upon purchase at our retail store locations. For our
ecommerce sales, revenue is recognized when control passes to the customer upon shipment. Taxes collected from
our customers are recorded on a net basis. We accrue for estimated sales returns by customers based on historical
return experience. The allowance for sales returns at February 2, 2019 and February 3, 2018 was $3.3 million and
$2.6 million, respectively. We record the sale of gift cards as a current liability and recognize revenue when a
customer redeems a gift card. The current liability for gift cards at February 2, 2019 and February 3, 2018 was $4.3
and $6.4 million, respectively. Additionally, the portion of gift cards that will not be redeemed (“gift card
breakage”) is recognized in proportion of the patterns used by the customer based on our historical redemption
patterns. For the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017, we recorded net sales
related to gift card breakage income of $1.5 million, $1.1 million and $1.1 million, respectively.
Loyalty Program— We have a customer loyalty program, the Zumiez STASH, which allows members to
earn points for purchases or performance of certain activities. The points can be redeemed for a broad range of
rewards, including product and experiential rewards. Points earned for purchases are recorded as a current liability
and a reduction of net sales based on the relative fair value of the points at the time the points are earned and
estimated redemption rates. Revenue is recognized upon redemption of points for rewards. Points earned for the
performance of activities are recorded as a current liability based on the estimated cost of the points and as
marketing expense when redeemed. The deferred revenue related to our customer loyalty program at February 2,
2019 and February 3, 2018 was $2.1 million and $1.6 million, respectively.
Cost of Goods Sold—Cost of goods sold consists of branded merchandise costs and our private label
merchandise costs including design, sourcing, importing and inbound freight costs. Our cost of goods sold also
includes shrinkage, buying, occupancy, ecommerce fulfillment, distribution and warehousing costs (including
associated depreciation) and freight costs for store merchandise transfers. Cash consideration received from vendors
is reported as a reduction of cost of goods sold if the inventory has sold, a reduction of the carrying value of the
inventory if the inventory is still on hand, or a reduction of selling, general and administrative expense if the
amounts are reimbursements of specific, incremental and identifiable costs of selling the vendors’ products.
Shipping Revenue and Costs—We include shipping revenue related to ecommerce sales in net sales and the
related freight cost is charged to cost of goods sold.
Selling, General and Administrative Expense—Selling, general and administrative expenses consist
primarily of store personnel wages and benefits, administrative staff and infrastructure expenses, freight costs for
merchandise shipments from the distribution centers to the stores, store supplies, depreciation on fixed assets at the
home office and stores, facility expenses, training expenses, advertising and marketing costs. Credit card fees,
insurance, public company expenses, legal expenses, amortization of intangibles assets and other miscellaneous
operating costs are also included in selling, general and administrative expenses.
56
Advertising—We expense advertising costs as incurred, except for catalog costs, which are expensed once
the catalog is mailed. Advertising expenses are net of sponsorships and vendor reimbursements. Advertising
expense was $12.2 million, $10.8 million and $10.0 million for the fiscal years ended February 2, 2019, February 3,
2018 and January 28, 2017, respectively.
Stock-Based Compensation—We account for stock-based compensation by recording the estimated fair
value of stock-based awards granted as compensation expense over the vesting period, net of estimated forfeitures.
Stock-based compensation expense is attributed using the straight-line method. We estimate forfeitures of stock-
based awards based on historical experience and expected future activity. The fair value of restricted stock awards
and units is measured based on the closing price of our common stock on the date of grant. The fair value of stock
option grants is estimated on the date of grant using the Black-Scholes option pricing model.
Common Stock Share Repurchases—We may repurchase shares of our common stock under authorizations
made from time to time by our Board of Directors. Under applicable Washington State law, shares repurchased are
retired and not presented separately as treasury stock on the consolidated financial statements. Instead, the value of
repurchased shares is deducted from retained earnings.
Income Taxes—We use the asset and liability method of accounting for income taxes. Using this method,
deferred tax assets and liabilities are recorded based on the differences between the financial reporting and tax basis
of assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that
we expect to be in effect when the differences are expected to reverse. We routinely evaluate the likelihood of
realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available
evidence, it is determined that it is more likely than not that all or some portion of the deferred tax benefit will not
be realized. The valuation allowance on our deferred tax assets was $5.2 million at February 2, 2019 and $3.6
million at February 3, 2018.
We regularly evaluate the likelihood of realizing the benefit of income tax positions that we have taken in
various federal, state and foreign filings by considering all relevant facts, circumstances and information available.
If we believe it is more likely than not that our position will be sustained, we recognize a benefit at the largest
amount that we believe is cumulatively greater than 50% likely to be realized. Interest and penalties related to
income tax matters are classified as a component of income tax expense. Unrecognized tax benefits are recorded in
other long-term liabilities on the consolidated balance sheets.
Our tax provision for interim periods is determined using an estimate of our annual effective rate, adjusted for
discrete items, if any, that are taken into account in the relevant period. As the fiscal year progresses, we periodically
refine our estimate based on actual events and earnings by jurisdiction. This ongoing estimation process can result in
changes to our expected effective tax rate for the full fiscal year. When this occurs, we adjust the income tax
provision during the quarter in which the change in estimate occurs so that our year-to-date provision equals our
expected annual rate.
Earnings per Share—Basic earnings per share is based on the weighted average number of common shares
outstanding during the period. Diluted earnings per share is based on the weighted average number of common
shares and common share equivalents outstanding during the period. The dilutive effect of stock options and
restricted stock is applicable only in periods of net income. Common share equivalents included in the computation
represent shares issuable upon assumed exercise of outstanding stock options, employee stock purchase plan funds
held to acquire stock and non-vested restricted stock. Potentially anti-dilutive securities not included in the
calculation of diluted earnings per share are options to purchase common stock where the option exercise price is
greater than the average market price of our common stock during the period reported.
Foreign Currency Translation—Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars, the reporting currency, at the exchange rate prevailing at the balance sheet date. Revenue and expenses
denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange rate for the
period and the translation adjustments are reported as an element of accumulated other comprehensive (loss) income
on the consolidated balance sheets.
57
Segment Reporting—We identify our operating segments according to how our business activities are
managed and evaluated. Our operating segments have been aggregated and are reported as one reportable segment
based on the similar nature of products sold, production, merchandising and distribution processes involved, target
customers and economic characteristics.
Recent Accounting Standards—In August 2018, the Financial Accounting Standards Board (“FASB”)
issued a new standard over customer’s accounting for implementation costs incurred in a cloud computing
arrangement that is a service contract. The standard requires implementation costs incurred in a hosting
arrangement that is a service contract be accounted for in accordance with ASC 350-40. The new standard is
effective for annual periods beginning after December 15, 2019, with early adoption permitted. We are currently
evaluating the impact of this standard on our consolidated financial statements.
In January 2017, the FASB issued a new standard simplifying the test for goodwill impairment. The standard
eliminates Step 2 from the goodwill impairment test. The standard requires entities perform the goodwill impairment
test by comparing the fair value of a reporting unit to its carrying amount and recognize the impairment charge for
the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total goodwill
allocated to that reporting unit. The new standard is effective for annual or interim goodwill impairment tests in
fiscal years beginning after December 15, 2019, with early adoption permitted. We do not expect this standard to
have any impact on our consolidated financial statements.
In February 2016, the FASB issued a comprehensive standard related to lease accounting to increase
transparency and comparability among organizations. The standard requires the recognition of right-of-use assets
and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. In July
2018, the FASB issued an update that allows companies an additional optional transition method to recognize a
cumulative effect adjustment to the opening balance of retained earnings recorded at the beginning of the period of
adoption. The new standard is effective for the fiscal year beginning after December 15, 2018.
We will adopt this standard for the fiscal year beginning February 3, 2019, using the optional transition
method. We expect to elect the package of practical expedients available upon adoption that allows us (1) to not
reassess whether expired or existing contracts contain leases, (2) to not reassess lease classification for existing
leases, and (3) to not reassess initial direct costs for existing leases.
We are finalizing the adoption of this standard, which includes the implementation of a lease accounting
system, as well as updating business processes and internal controls over financial reporting. All of our 707 retail
store locations at the time of adoption are subject to operating lease arrangements. We expect the impact to our
consolidated balance sheet will be material, with right-of-use assets and operating lease liabilities of greater than
$300.0 million. We do not expect this standard to have a material impact on our consolidated statement of income
or cash flows.
In January 2016, the FASB issued a new standard related primarily to accounting for equity investments,
financial liabilities where the fair value option has been elected, and the presentation and disclosure requirements for
financial instruments. There will no longer be an available-for-sale classification for equity securities and therefore,
no changes in fair value will be reported in other comprehensive (loss) income for equity securities with readily
determinable fair values. We adopted this standard for the fiscal year ended February 2, 2019 and it did not have a
material impact on our consolidated financial statements.
In May 2014, the FASB issued a comprehensive new revenue recognition standard codified under ASC
606. The new standard allowed for a full retrospective approach to transition or a modified retrospective
approach. This guidance was effective for fiscal years beginning after December 15, 2017. On February 4, 2018,
we adopted this standard using the modified retrospective approach. Results at February 2, 2019 and for the year
ended February 2, 2019 are presented under ASC 606, while results at February 3, 2018 and January 28, 2017 and
for the year ended February 3, 2018 and January 28, 2017 continue to be reported in accordance with our historical
accounting under ASC Topic 605, Revenue Recognition.
The adoption of ASC 606 resulted in a change to the timing of revenue recognition on ecommerce sales from
delivery to shipment and the timing of revenue recognition on gift card breakage from remote to in proportion to the
58
patterns of rights exercised by our customers. We recorded an increase to retained earnings of $2.1 million, net of
$0.6 million in taxes, as of February 4, 2018 due to the cumulative effect of adopting ASC 606. The cumulative
effect resulted in a decrease in other liabilities of $3.1 million and inventory of $0.4 million, as well as $0.4 million
decrease in our deferred tax assets and $0.2 million increase in income taxes payable. The impact of adopting ASC
606 was not material to the condensed consolidated financial statements for the year ended February 2, 2019.
We elected to use the practical expedients to account for shipping and handling costs that occur after the
customer obtains control of the goods as fulfillment costs. We accrue the expense of shipping and handling costs
when product is shipped. We also elected to exclude from net sales the tax amounts collected from our customers to
be remitted to governmental authorities.
3. Revenue
The following table disaggregates net sales by geographic region (in thousands):
United States.................................................................................
Canada ..........................................................................................
Europe...........................................................................................
Australia........................................................................................
Net sales ..................................................................................
February 2,
2019
$ 814,153
55,184
101,149
8,131
$ 978,617
$
Fiscal Year Ended
February 3,
2018
774,193
53,569
91,729
7,910
927,401
$
January 28,
2017
710,976
42,843
79,067
3,382
836,268
$
$
4. Cash, Cash Equivalents and Marketable Securities
The following tables summarize the estimated fair value of our cash, cash equivalents and marketable
securities and the gross unrealized holding gains and losses (in thousands):
February 2, 2019
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Amortized
Cost
Estimated
Fair Value
Cash and cash equivalents:
Cash ............................................................................. $
Money market funds....................................................
Corporate debt securities .............................................
Total cash and cash equivalents ........................................
Marketable securities:
26,336 $
3,689
22,397
52,422
U.S. treasury and government agency securities .........
Corporate debt securities .............................................
State and local government securities .........................
Variable-rate demand notes .........................................
4,326
55,122
51,462
1,940
Total marketable securities ............................................... $ 112,850 $
— $
—
—
—
2
98
13
—
113 $
— $
—
—
—
26,336
3,689
22,397
52,422
4,328
—
55,212
(8)
51,432
(43)
—
1,940
(51) $ 112,912
59
February 3, 2018
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Amortized
Cost
Estimated
Fair Value
Cash and cash equivalents:
Cash.............................................................................. $
Money market funds ....................................................
Total cash and cash equivalents ........................................
Marketable securities:
21,911 $
2,130
24,041
State and local government securities..........................
Variable-rate demand notes .........................................
Total marketable securities................................................ $
68,620
29,365
97,985 $
— $
—
—
9
—
9 $
$
—
—
—
21,911
2,130
24,041
(130)
—
(130) $
68,499
29,365
97,864
All of our available-for-sale debt securities have an effective maturity date of two years or less and may be
liquidated, at our discretion, prior to maturity.
The following tables summarize the gross unrealized holding losses and fair value for investments in an
unrealized loss position, and the length of time that individual securities have been in a continuous loss position (in
thousands):
February 2, 2019
Less Than Twelve Months 12 Months or Greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Marketable securities:
Corporate debt securities .......................... $ 14,523 $
State and local government securities ...... 26,986
Total marketable securities ............................ $ 41,509 $
(8) $
(20)
(28) $
— $
9,548
9,548 $
— $ 14,523 $
(23) 36,534
(23) $ 51,057 $
(8)
(43)
(51)
February 3, 2018
Less Than Twelve Months 12 Months or Greater
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Marketable securities:
State and local government securities ...... $ 53,655 $
Total marketable securities ............................ $ 53,655 $
(129) $
(129) $
610 $
610 $
(1) $ 54,265 $
(1) $ 54,265 $
(130)
(130)
We did not record a realized loss for other-than-temporary impairments during the fiscal years ended February
2, 2019, February 3, 2018 and January 28, 2017.
60
5. Receivables
Receivables consisted of the following (in thousands):
February 2,
2019
February 3,
2018
Credit cards receivable ........................................................... $
Vendor receivable ..................................................................
Insurance receivable ...............................................................
Tenant allowances receivable.................................................
Income tax receivable.............................................................
Other receivables....................................................................
Receivables............................................................................. $
10,813 $
3,065
1,076
675
201
1,946
17,776 $
9,743
3,497
843
678
1,008
1,258
17,027
6. Fixed Assets
Fixed assets consisted of the following (in thousands):
Leasehold improvements .......................................................... $
Fixtures......................................................................................
Buildings, land and building and land improvements...............
Computer equipment, software, store equipment and other .....
Fixed assets, at cost ...................................................................
Less: Accumulated depreciation ...............................................
Fixed assets, net ........................................................................ $
February 2,
2019
186,431 $
88,543
28,189
35,253
338,416
(217,913)
120,503 $
February 3,
2018
183,424
88,267
28,160
35,782
335,633
(206,781)
128,852
Depreciation expense on fixed assets is recognized on our consolidated income statement as follows (in
thousands):
Cost of goods sold............................................. $
Selling, general and administrative
expenses .........................................................
Depreciation expense................................... $
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
1,049
1,284 $
985 $
24,844
26,128 $
25,246
26,231 $
25,843
26,892
Impairment of Long-Lived Assets—We recorded $1.7 million, $1.6 million and $1.9 million of impairment
of long-lived assets in selling, general and administrative expenses on the consolidated statements of income for the
years ended February 2, 2019, February 3, 2018 and January 28, 2017.
7. Goodwill and Intangible Assets
The following tables summarize the changes in the carrying amount of goodwill (in thousands):
Balance as of January 28, 2017 ...................................... $
Effects of foreign currency translation...........................
Balance as of February 3, 2018 ......................................
Effects of foreign currency translation...........................
Balance as of February 2, 2019 ...................................... $
56,001
6,911
62,912
(4,099)
58,813
There was no impairment of goodwill for the fiscal years ended February 2, 2019, February 3, 2018 and
January 28, 2017.
61
The following table summarizes the gross carrying amount, accumulated amortization and the net carrying
amount of intangible assets (in thousands):
Gross Carrying
Amount
February 2, 2019
Accumulated
Amortization
Intangible
Assets, Net
Intangible assets not subject to amortization:
Trade names and trademarks................................... $
15,147 $
— $ 15,147
Intangible assets subject to amortization:
Developed technology.............................................
Customer relationships............................................
Non-compete agreements........................................
Total intangible assets................................................... $
3,437
2,546
218
21,348 $
3,437
2,546
105
—
—
113
6,088 $ 15,260
Gross Carrying
Amount
February 3, 2018
Accumulated
Amortization
Intangible
Assets, Net
Intangible assets not subject to amortization:
Trade names and trademarks................................... $
16,525 $
— $ 16,525
Intangible assets subject to amortization:
Developed technology.............................................
Customer relationships............................................
Non-compete agreements........................................
Total intangible assets................................................... $
3,743
2,774
239
23,281 $
3,743
2,774
68
—
—
171
6,585 $ 16,696
There was no impairment of intangible assets for the fiscal years ended February 2, 2019, February 3, 2018
and January 28, 2017.
Amortization expense of intangible assets for each of the fiscal years ended February 2, 2019, February 3,
2018 and January 28, 2017 was $0.1 million. Amortization expense of intangible assets is recorded in selling,
general and administrative expense on the consolidated statements of income.
8. Other Liabilities
Other liabilities consisted of the following (in thousands):
Accrued indirect taxes ............................................................ $
Accrued payables....................................................................
Unredeemed gift cards............................................................
Allowance for sales returns ....................................................
Deferred revenue ....................................................................
Other current liabilities ...........................................................
Other liabilities ....................................................................... $
February 2, 2019 February 3, 2018
7,121
5,497
6,410
2,563
2,565
2,711
26,867
6,373 $
5,626
4,279
3,304
2,167
1,745
23,494 $
9. Revolving Credit Facilities and Debt
On December 7, 2018, the Company entered into a secured credit agreement with Wells Fargo Bank, N.A.,
which provided us with a senior secured credit facility (“credit facility”) of up to $35.0 million. The secured
revolving credit facility is available for working capital and other general corporate purposes. The senior secured
credit facility provides for the issuance of standby letters of credit in an amount not to exceed $17.5 million
outstanding at any time and with a term not to exceed 365 days. The commercial line of credit provides for the
issuance of commercial letters of credit in an amount not to exceed $10.0 million and with terms not to exceed 120
days. The amount of borrowings available at any time under our credit facility is reduced by the amount of standby
62
and commercial letters of credit outstanding at that time. The credit facility replaces our asset-based revolving
credit agreement (“ABL Facility”) with Wells Fargo Bank, N.A., which provided for a senior secured revolving
credit facility of up to $100 million, subject to a borrowing base, with a letter of credit sub-limit of $10 million,
which was entered into on February 5, 2016 and was to mature on February 5, 2021. All obligations under the credit
facility are joint and several with Zumiez Services and guaranteed by certain of our subsidiaries. The credit facility
is secured by a first-priority security interest in substantially all of the personal property (but not the real property) of
the borrowers and guarantors. Amounts borrowed under the credit facility bear interest at an adjusted LIBOR rate
plus a margin of 1.25% per annum.
The credit facility contains various representations, warranties and restrictive covenants that, among other
things and subject to specified circumstances and exceptions, restrict our ability to incur indebtedness (including
guarantees), grant liens, make investments, pay dividends or distributions with respect to capital stock, make
prepayments on other indebtedness, engage in mergers, dispose of certain assets or change the nature of their
business. The credit facility contains certain financial maintenance covenants that generally require the Registrant
to have net income after taxes of at least $5.0 million on a trailing four-quarter basis and a quick ratio of 1.25:1.0 at
the end of each fiscal quarter. The credit facility contains certain affirmative covenants, including reporting
requirements such as delivery of financial statements, certificates and notices of certain events, maintaining
insurance, and providing additional guarantees and collateral in certain circumstances. The credit facility includes
customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy
of representations or warranties, cross-default to other material indebtedness, bankruptcy and insolvency events,
invalidity or impairment of guarantees or security interests, material judgments and change of control.
There were no borrowings outstanding under the credit facility at February 2, 2019 or the ABL Facility at
February 3, 2018. We had no open commercial letters of credit outstanding under our secured revolving credit
facility or ABL Facility at February 2, 2019 or February 3, 2018, respectively.
Additionally, we terminated our revolving lines of credit with UniCredit Bank Austria and Commerzbank
Germany during fiscal 2018. At February 2, 2019, we had no available lines of credit or borrowings outstanding.
At February 3, 2018, we had available lines of credit up to 20.5 million Euro ($25.6 million) and $0.9 million in
borrowings outstanding at February 3, 2018.
10. Commitments and Contingencies
Operating Leases—Total rent expense is as follows (in thousands):
Fiscal Year Ended
Minimum rent expense ............................................ $ 79,761 $
Contingent rent expense...........................................
3,901
Total rent expense (1) .............................................. $ 83,662 $
February 3, 2018 January 28, 2017
73,888
2,618
76,506
77,443 $
3,337
80,780 $
February
2, 2019
(1)
Total rent expense does not include real estate taxes, insurance, common area maintenance charges and other
executory costs, which were $40.9 million, $41.6 million and $41.3 million for the fiscal years ended
February 2, 2019, February 3, 2018 and January 28, 2017.
Future minimum lease payments at February 2, 2019 are as follows (in thousands):
Fiscal 2019...................................................................... $
Fiscal 2020......................................................................
Fiscal 2021......................................................................
Fiscal 2022......................................................................
Fiscal 2023......................................................................
Thereafter........................................................................
Total (1) .......................................................................... $
69,293
66,364
60,962
55,155
45,503
94,024
391,301
63
(1) Amounts in the table do not include contingent rent and real estate taxes, insurance, common area
maintenance charges and other executory costs obligations.
Purchase Commitments—At February 2, 2019 and February 3, 2018, we had outstanding purchase orders to
acquire merchandise from vendors of $216.6 million and $208.5 million, respectively. We have an option to cancel
these commitments with no notice prior to shipment, except for certain private label, packaging supplies and
international purchase orders in which we are obligated to repay contractual amounts upon cancellation.
Litigation—We are involved from time to time in claims, proceedings and litigation arising in the ordinary course
of business. We have made accruals with respect to these matters, where appropriate, which are reflected in our
consolidated financial statements. For some matters, the amount of liability is not probable or the amount cannot be
reasonably estimated and therefore accruals have not been made. We may enter into discussions regarding settlement of
these matters, and may enter into settlement agreements, if we believe settlement is in the best interest of our shareholders.
A putative class action, Alexia Herrera, on behalf of herself and all other similarly situated, v. Zumiez Inc., was
filed against us in the Eastern District Count of California, Sacramento Division under case number 2:16-cv-01802-SB in
August 2016. Alexandra Bernal filed the initial complaint and then in October 2016 added Alexia Herrera as a named
plaintiff and Alexandra Bernal left the case. The putative class action lawsuit against us alleges, among other things,
various violations of California’s wage and hour laws, including alleged violations of failure to pay reporting time. In
May 2017 we moved for judgment on the pleadings in that plaintiff’s cause of action for reporting-time pay should fail as
a matter of law as the plaintiff and the other putative class members did not “report for work” with respect to certain shifts
on which the plaintiff’s claims are based. In August 2017, the court denied the motion. However, in October 2017 the
district court certified the order denying the motion for judgment on the pleadings for immediate interlocutory review by
the United States Court of Appeals for the Ninth Circuit. We then filed a petition for permission to appeal the order
denying the motion for judgment on the pleadings with the United States Court of Appeals for the Ninth Circuit, which
petition was then granted in January 2018. Our opening appellate brief was filed on June 6, 2018 and the plaintiff’s
answering appellate brief was filed August 6, 2018. Our reply brief to the Plaintiff’s answering appellate brief was filed
on September 26, 2018 and oral arguments are scheduled to be held on February 4, 2019. Given the current status of this
case, we are unable to express a view regarding the ultimate outcome or, if the outcome is adverse, to estimate an amount,
or range, of reasonably possible loss. We have defended this case vigorously and will continue to do so.
Insurance Reserves—We use a combination of third-party insurance and self-insurance for a number of risk
management activities including workers’ compensation, general liability and employee-related health care benefits. We
maintain reserves for our self-insured losses, which are estimated based on actuarial based analysis of historical claims
experience. The self-insurance reserve at for both February 2, 2019 and February 3, 2018 was $2.1 million.
11. Fair Value Measurements
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three
levels and bases the categorization within the hierarchy upon the lowest level of input that is available and
significant to the fair value measurement:
(cid:129)
(cid:129)
(cid:129)
Level 1—Quoted prices in active markets for identical assets or liabilities;
Level 2—Quoted prices for similar assets or liabilities in active markets or inputs that are observable; and
Level 3—Inputs that are unobservable.
64
The following tables summarize assets measured at fair value on a recurring basis (in thousands):
Level 1
February 2, 2019
Level 2
Level 3
Cash equivalents:
Money market funds ............................................ $
Corporate debt securities......................................
3,689 $
22,397
— $
—
Marketable securities:
Treasury and agency securities ............................
Corporate debt securities......................................
State and local government securities..................
Variable-rate demand notes .................................
—
—
—
—
4,328
55,212
51,432
1,940
Long-term other assets:
Money market funds ............................................
Total........................................................................... $
1,404
—
27,490 $ 112,912 $
—
—
—
—
—
—
Level 1
February 3, 2018
Level 2
Level 3
Cash equivalents:
Money market funds............................................. $
2,130 $
— $
Marketable securities:
State and local government securities ..................
Variable-rate demand notes..................................
—
—
68,499
29,365
Long-term other assets:
Money market funds.............................................
Equity investments ...............................................
Total ........................................................................... $
1,437
—
3,567 $
—
—
97,864 $
—
—
—
—
151
151
The Level 2 marketable securities primarily include state and local municipal securities, corporate debt
securities and variable-rate demand notes. Fair values are based on quoted market prices for similar assets or
liabilities or determined using inputs that use readily observable market data that are actively quoted and can be
validated through external sources, including third-party pricing services, brokers and market transactions. We
review the pricing techniques and methodologies of the independent pricing service for Level 2 investments and
believe that its policies adequately consider market activity, either based on specific transactions for the security
valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently
traded. We monitor security-specific valuation trends and we make inquiries with the pricing service about material
changes or the absence of expected changes to understand the underlying factors and inputs and to validate the
reasonableness of the pricing.
Assets measured at fair value on a nonrecurring basis include items such as long-lived assets resulting from
impairment, if deemed necessary. There were no material assets measured at fair value on a nonrecurring basis for
the fiscal years ended February 2, 2019 and February 3, 2018.
12. Stockholders’ Equity
Share Repurchase—In December 2015, our Board of Directors authorized us to repurchase up to $70.0
million of our common stock. This program was expired as of January 28, 2017. In December 2018, our Board of
Directors authorized us to repurchase up to $75.0 million of our common stock. This program is expected to
continue through February 1, 2020, unless the time period is extended or shortened by the Board of Directors. At
February 3, 2019, there is $75.0 million available for share repurchase under the current share repurchase program.
65
Accumulated Other Comprehensive (Loss) Income—The component of accumulated other comprehensive
(loss) income and the adjustments to other comprehensive (loss) income for amounts reclassified from accumulated
other comprehensive (loss) income into net income is as follows (in thousands):
Foreign
currency
translation
adjustments
Net unrealized
gains (losses) on
available-for-
sale investments
Accumulated other
comprehensive
income (loss)
Balance at January 30, 2016 .......................................................... $
Other comprehensive loss, net (1) .................................................
Balance at January 28, 2017 .......................................................... $
Other comprehensive income, net (1)............................................
Balance at February 3, 2018 .......................................................... $
Other comprehensive loss, net (1) .................................................
Balance at February 2, 2019 .......................................................... $
(15,136) $
(1,338)
(16,474) $
16,583
109 $
(9,379)
(9,270) $
(111) $
97
(14) $
(60)
(74) $
120
46 $
(15,247)
(1,241)
(16,488)
16,523
35
(9,259)
(9,224)
(1) Other comprehensive (loss) income before reclassifications is net of taxes of less than $0.1 million for the
fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017 for both net unrealized gains
(losses) on available-for-sale investments and accumulated other comprehensive (loss) income. Foreign
currency translation adjustments are not adjusted for income taxes as they relate to permanent investments in
our international subsidiaries.
13. Equity Awards
General—We maintain several equity incentive plans under which we may grant incentive stock options,
nonqualified stock options, stock bonuses, restricted stock awards, restricted stock units and stock appreciation
rights to employees (including officers), non-employee directors and consultants.
Stock-Based Compensation—Total stock-based compensation expense is recognized on our consolidated
income statements as follows (in thousands):
Cost of goods sold............................................. $
Selling, general and administrative expenses ...
Total stock-based compensation expense ......... $
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
928
3,650
4,578
1,001 $
4,031
5,032 $
1,130 $
4,741
5,871 $
At February 2, 2019, there was $7.9 million of total unrecognized compensation cost related to unvested stock
options and restricted stock. This cost has a weighted-average recognition period of 1.2 years.
66
Restricted Equity Awards —The following table summarizes the activity of restricted stock awards and
restricted stock units, collectively defined as “restricted equity awards” (in thousands, except grant date weighted-
average fair value):
Restricted Equity
Awards
Grant Date
Weighted-
Average Fair
Value
Intrinsic
Value
Outstanding at January 30, 2016 ..............................
Granted .....................................................................
Vested.......................................................................
Forfeited ...................................................................
Outstanding at January 28, 2017 ..............................
Granted .....................................................................
Vested.......................................................................
Forfeited ...................................................................
Outstanding at February 3, 2018 ..............................
Granted .....................................................................
Vested.......................................................................
Forfeited ...................................................................
Outstanding at February 2, 2019 ..............................
286 $
301 $
(128) $
(17) $
442 $
290 $
(183) $
(25) $
524 $
262 $
(217) $
(25) $
544 $
30.32
19.06
29.54
25.78
23.05
17.20
22.67
19.56
20.11
23.94
20.85
20.70
21.63 $ 13,684
The following table summarizes additional information related to restricted equity awards activity (in
thousands):
Vest date fair value of restricted
stock vested .................................................... $
4,627 $
3,116 $
2,404
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
Stock Options—We had 0.3 million stock options outstanding at February 2, 2019 with a grant date weighted
average exercise price of $23.06. We had 0.3 million stock options outstanding at February 3, 2018 with a grant
date weighted average exercise price of $22.82 and 0.2 million stock options outstanding at January 28, 2017 with a
grant date weighted average exercise price of $25.61.
Employee Stock Purchase Plan—We offer an Employee Stock Purchase Plan (“ESPP”) for eligible
employees to purchase our common stock at a 15% discount of the lesser of fair market value of the stock on the
first business day or the last business day of the offering period, subject to maximum contribution thresholds. The
number of shares issued under our ESPP was less than 0.1 million for each of the fiscal years ended February 2,
2019, February 3, 2018 and January 28, 2017.
14. Income Taxes
The components of earnings before income taxes are (in thousands):
United States................................................... $
Foreign............................................................
Total earnings before income taxes........... $
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
35,456
4,768
40,224
54,397 $
(5,994)
48,403 $
68,276 $
(5,946)
62,330 $
67
The components of the provision for income taxes are (in thousands):
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
Current:
Federal.......................................................................... $
State and local ..............................................................
Foreign .........................................................................
Total current ...........................................................
Deferred:
Federal..........................................................................
State and local ..............................................................
Foreign .........................................................................
Total deferred .........................................................
Provision for income taxes ..................................... $
14,374 $
3,481
1,079
18,934
(1,186)
(443)
(180)
(1,809)
17,125 $
14,514 $
2,477
1,328
18,319
2,598
237
447
3,282
21,601 $
13,350
2,338
1,187
16,875
(1,855)
(266)
(434)
(2,555)
14,320
The reconciliation of the income tax provision at the U.S. federal statutory rate to our effective income tax rate
is as follows:
February 2, 2019
Fiscal Year Ended
February 3, 2018
January 28, 2017
U.S. federal statutory tax rate......................................
State and local income taxes, net of federal effect......
Change in valuation allowance ...................................
Foreign earnings, net...................................................
Other............................................................................
Effective tax rate....................................................
21.0%
4.1
3.0
(0.3)
(0.3)
27.5%
33.7%
3.9
7.0
0.6
(0.6)
44.6%
35.0%
3.1
—
(2.3)
(0.2)
35.6%
On December 22, 2017, the U.S. Tax Cuts and Jobs Act, a significant modification of existing U.S. federal tax
legislation, was enacted which reduced our U.S. federal tax rate from 35.0% to 21.0%, effective January 1, 2018.
The statutory tax rate for fiscal 2018 and fiscal 2017 reflects the change in tax rate. The decrease in rate resulted in a
decrease in our provision for income taxes of $8.7 million and $0.5 million for fiscal years ended February 2, 2019,
February 3, 2018, respectively.
The components of deferred income taxes are (in thousands):
February 2, 2019 February 3, 2018
Deferred tax assets:
Deferred rent................................................................................... $
Net operating losses........................................................................
Employee benefits, including stock-based compensation ..............
Accrued liabilities...........................................................................
Inventory ........................................................................................
Other ...............................................................................................
Total deferred tax assets............................................................
Deferred tax liabilities:
Property and equipment..................................................................
Goodwill and other intangibles ......................................................
Other ...............................................................................................
Total deferred tax liabilities ......................................................
Net valuation allowances ..........................................................
Net deferred tax assets .............................................................. $
11,037 $
11,480
2,050
1,341
1,148
1,130
28,186
(8,328)
(8,706)
(708)
(17,742)
(5,185)
5,259 $
11,968
9,809
1,757
1,586
981
721
26,822
(9,813)
(8,355)
(903)
(19,071)
(3,577)
4,174
68
At February 2, 2019 and February 3, 2018, we had foreign net operating loss carryovers that could be utilized
to reduce future years’ tax liabilities of $46.1 million and $39.1 million, respectively. The tax-effected foreign net
operating loss carryovers were $11.5 million and $9.8 million at February 2, 2019 and February 3, 2018,
respectively. The net operating loss carryovers have an indefinite carryfoward period and currently will not expire.
At February 2, 2019 and February 3, 2018, we had valuation allowances on our deferred tax assets of $5.2
million and $3.6 million, respectively, due to the uncertainty of the realization of certain deferred tax assets related
to foreign net operating loss carryovers.
We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. Our U.S.
federal income tax returns are no longer subject to examination for years before fiscal 2017 and with few exceptions,
we are no longer subject to U.S. state examinations for years before fiscal 2014. We are no longer subject to
examination for all foreign income tax returns before fiscal 2013.
15. Earnings per Share, Basic and Diluted
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except
per share amounts):
Net income ..................................................................................... $
Weighted average common shares for basic earnings
per share ......................................................................................
Dilutive effect of stock options and restricted stock......................
Weighted average common shares for diluted earnings
per share ......................................................................................
Basic earnings per share................................................................. $
Diluted earnings per share ............................................................. $
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
25,904
45,205 $
26,802 $
24,936
276
24,679
199
25,212
1.81 $
1.79 $
24,878
1.09 $
1.08 $
24,727
181
24,908
1.05
1.04
Total anti-dilutive common stock options not included in the calculation of diluted earnings per share were 0.1
million, 0.3 million and 0.2 million for the fiscal years ended February 2, 2019, February 3, 2018 and January 28,
2017, respectively.
16. Related Party Transactions
The Zumiez Foundation is a charitable based nonprofit organization focused on meeting various needs of the
under-privileged. Our Chairman of the Board is also the President of the Zumiez Foundation. We committed
charitable contributions to the Zumiez Foundation of $0.9 million, $0.8 million and $0.7 million for the fiscal years
ended February 2, 2019, February 3, 2018, and January 28, 2017, respectively. We have accrued charitable
contributions payable to the Zumiez Foundation of $0.8 million and $0.7 million at February 2, 2019 and February
3, 2018, respectively.
69
17. Segment Reporting
Our operating segments have been aggregated and are reported as one reportable segment based on the similar
nature of products sold, production, merchandising and distribution processes involved, target customers and
economic characteristics.
The following table is a summary of product categories as a percentage of merchandise sales:
February 2, 2019
Fiscal Year Ended
February 3, 2018
January 28, 2017
Men's Apparel ..........................................
Accessories...............................................
Footwear...................................................
Women's Apparel .....................................
Hardgoods ................................................
Total ....................................................
41%
17%
17%
14%
11%
100%
41%
18%
16%
14%
11%
100%
37%
20%
18%
13%
12%
100%
The following tables present summarized geographical information (in thousands):
Fiscal Year Ended
February 2, 2019 February 3, 2018 January 28, 2017
Net sales (1):
United States...................................................... $
Foreign...............................................................
Total net sales............................................... $
814,153 $
164,464
978,617 $
774,193 $
153,208
927,401 $
710,976
125,292
836,268
February 2, 2019 February 3, 2018
Long-lived assets:
United States ..................................................... $
Foreign ..............................................................
Total long-lived assets ................................. $
100,509 $
27,174
127,683 $
105,821
29,873
135,694
(1) Net sales are allocated based on the location in which the sale was originated. Store sales are allocated based
on the location of the store and ecommerce sales are allocated to the U.S. for sales on zumiez.com and to
foreign for sales on zumiez.ca, blue-tomato.com and fasttimes.com.au.
70
EXHIBIT INDEX
3.1
3.2
4.1
10.15
10.20
10.21
10.22
10.23
10.24
10.27
10.28
Articles of Incorporation. [Incorporated by reference to Exhibit 3.1 to the Company’s Registration
Statement on Form S-1 (file No. 333-122865)]
Bylaws, as amended and restated May 21, 2014 and Amendment No.1, dated as of May 21, 2015, to
Bylaws of Zumiez Inc. (as previously Amended and Restated as of May 21, 2014 [Incorporated by
reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 23, 2014 and Exhibit
to the Company’s Form 8-K filed on May 22, 2015]
Form of Common Stock Certificate of Zumiez Inc. [Incorporated by reference to Exhibit 4.1 to the
Company’s Registration Statement on Form S-1 (file No. 333-122865)]
Zumiez Inc. 2005 Equity Incentive Plan, as amended and restated effective May 27, 2009. [Incorporated by
reference from Exhibit 10.15 to the Form 8-K filed by the Company on June 1, 2009]
Zumiez Inc. 2014 Equity Incentive Plan. [Incorporated by reference to Exhibit 10.20 to the Company’s
Current Report on Form 8-K filed on May 23, 2014]
Form of Restricted Stock Award Agreement and Terms and Conditions. [Incorporated by reference to
Exhibit 10.21 to the Company’s Current Report on Form 8-K filed on May 23, 2014]
Form of Stock Option Award Agreement and Terms and Conditions. [Incorporated by reference to Exhibit
10.22 to the Company’s Current Report on Form 8-K filed on May 23, 2014]
Zumiez Inc. 2014 Employee Stock Purchase Plan. [Incorporated by reference to Exhibit 10.23 to the
Company’s Current Report on Form 8-K filed on May 23, 2014]
Form of Indemnification Agreement. [Incorporated by reference to Exhibit 10.24 to the Company’s
Current Report on Form 8-K filed on May 23, 2014]
Credit Agreement dated as of February 5, 2016 among Zumiez Services Inc., as the lead borrower, for the
borrowers and guarantors named therein and Wells Fargo Bank, National Association, as agent and L/C
issuer and other lender parties thereto. [Incorporated by reference to Exhibit 10.27 to the Company’s Form
8-K filed on February 8, 2016]
Credit Agreement dated as of December 7, 2018 by and among Zumiez Inc., Zumiez Services Inc. and
Wells Fargo Bank, National Association. [Incorporated by reference to Exhibit 10.28 to the Form 8-K filed
by the Company on December 7, 2018]
21.1
Subsidiaries of the Company.
23.1
Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.
31.1
31.2
32.1
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of the Principal Financial Officer (Principal Accounting Officer) pursuant to Rule 13a-
14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certifications of the Principal Executive Officer and Principal Financial Officer (Principal Accounting
Officer) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
71
101
The following materials from Zumiez Inc.’s Annual Report on Form 10-K for the annual period ended
February 2, 2019, formatted in XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets at February 2, 2019 and February 3, 2018; (ii) Consolidated Statements of
Income for the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017; (iii)
Consolidated Statements of Comprehensive Income for the fiscal years ended February 2, 2019, February
3, 2018 and January 28, 2017; (iv) Consolidated Statements of Changes in Shareholders’ Equity for the
fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017; (v) Consolidated Statements
of Cash Flows for the fiscal years ended February 2, 2019, February 3, 2018 and January 28, 2017; and (vi)
Notes to Consolidated Financial Statements.
Copies of Exhibits may be obtained upon request directed to the attention of our Chief Legal Officer and Secretary,
4001 204th Street SW, Lynnwood, Washington 98036, and are available at the SEC’s website found at
www.sec.gov.
72
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ZUMIEZ INC.
/S/ RICHARD M. BROOKS
Signature
By: Richard M. Brooks
Chief Executive Officer and Director
(Principal Executive Officer)
/S/ CHRISTOPHER C. WORK
Signature
By: Christopher C. Work,
Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
March 18, 2019
Date
March 18, 2019
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/S/ THOMAS D. CAMPION
Signature
Thomas D. Campion, Chairman
March 18, 2019
Date
/S/ JAMES M. WEBER
Signature
James M. Weber, Director
/S/ MATTHEW L. HYDE
Signature
Matthew L. Hyde, Director
/S/ ERNEST R. JOHNSON
Signature
Ernest R. Johnson, Director
/S/ KALEN F. HOLMES
Signature
Kalen F. Holmes, Director
March 18, 2019
Date
/S/ SARAH G. MCCOY
Signature
Sarah G. McCoy, Director
March 18, 2019
Date
/S/TRAVIS D. SMITH
Signature
Travis D. Smith, Director
March 18, 2019
Date
/S/ SCOTT A. BAILEY
Signature
Scott A. Bailey, Director
March 18, 2019
Date
March 18, 2019
Date
March 18, 2019
Date
March 18, 2019
Date
73