Zumiez Inc

1. Nature of Business and Basis of Presentation

Nature of Business—Zumiez Inc., including its wholly owned subsidiaries, (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. We operate under the names Zumiez, Blue Tomato and Fast Times. We operate ecommerce websites atzumiez.com, zumiez.ca, blue-tomato.com and fasttimes.com.au. At November 2, 2024, we operated 752 stores;592 in the United States (“U.S.”),87 in Europe,46 in Canada, and 27 in Australia.

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 three months ended November 2, 2024 and October 28, 2023 were 13-week periods. The nine months ended November 2, 2024 and October 28, 2023 were 39-week periods.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of Zumiez Inc. and its wholly-owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.

In our opinion, the unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the condensed consolidated balance sheets, operating results and cash flows for the periods presented.

The financial data at February 3, 2024 is derived from audited consolidated financial statements, which are included in our Annual Report on Form 10-K for the year ended February 3, 2024, and should be read in conjunction with the audited consolidated financial statements and notes thereto. Interim results are not necessarily indicative of results for the full fiscal year due to seasonality and other factors.

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 condensed 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.

Restricted Cash—Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded asrestricted cash in other current assets and other long-term assets on our condensed consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows (in thousands):

As of November 2, 2024, restricted cash included in other current assets and other long-term assets amounted to$3.5 million and$5.5 million, resp ectively. As of October 28, 2023, restricted cash amounting to$5.4 million were all classified as other long-term assets Restricted cash represents amounts held as insurance collateral and collateral for bank guarantees on certain store operating leases.

Effective as of May 3, 2024, we terminated the Credit Agreement and standby letters of credit have been transitioned to restricted deposits with the Bank. See Note 6 Revolving Credit Facilities and Debt for details of termination.

Recent Accounting Standards—We review recent account pronouncements on a quarterly basis and have excluded discussion of those that are not applicable and those that we determined did not have, or are not expected to have, a material impact on the condensed consolidated financial statements.

In November 2024, the FASB issued Accounting Standards Update ("ASU") 2024-03, Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses, which requires additional disclosure of the nature of expenses included in the income statement in response to longstanding requests from investors for more information about an entity’s expenses. The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The Company is currently evaluating the effect that the new ASU will have on its disclosures.

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures around significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The ASU requires public entities to adopt this new guidance on a retrospective basis. The Company is currently evaluating the effect that the new ASU will have on its disclosures and expects to adopt effective for fiscal 2025.

In December 2023, the FASB issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires business entities to expand their annual disclosures of income taxes paid and the effective rate reconciliation. The ASU is effective for fiscal years beginning after December 15, 2024.The Company is currently evaluating the effect that the new ASU will have on its disclosures and expects to adopt effective for fiscal 2025.

On December 20, 2021, the Organization for Economic Co-operation and Development ("OECD") has published a proposal to establish a new global minimum corporate tax rate of 15%, commonly referred to as Pillar Two. While the U.S. has not yet adopted the Pillar Two framework into law, several countries in which we operate have enacted tax legislation based on the Pillar Two framework with certain components of the minimum tax rules effective beginning in fiscal year 2024 and further rules becoming effective beginning in fiscal year 2025. These rules are not expected to materially impact the Company’s Consolidated Financial Statements, considering the Company does not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum rate. The Company will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.

2. Revenue

The following table disaggregates net sales by geographic region (in thousands):

Net sales for the three months ended November 2, 2024 included a$0.9 million decrease due to the change in foreign exchange rates, which consisted of a$0.8 million decrease in Europe, and a$0.2 million decrease in Australia partially offset by a$0.1 million increase in Canada. Net sales for the nine months ended November 2, 2024 included a$0.2 million decrease due to the change in foreign exchange rates, which consisted of a decrease of$0.6 in Europe, partially offset by a$0.4 million increase in Canada.

Our contract liabilities include deferred revenue related to our customer loyalty program and gift cards. The current liability for gift cards was$2.5 million at November 2, 2024 and $4.3 million at February 3, 2024, respectively. Deferred revenue related to our STASH loyalty program was$1.1 million and $1.0 million at November 2, 2024 and February 3, 2024, respectively.

3. 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):

All of our marketable securities have an effective maturity date or weighted average life offive years or less at the time of purchase 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):

4. Leases

At November 2, 2024, we had operating leases for our retail stores, certain distribution and fulfillment facilities, vehicles and equipment. Our remaining lease terms vary from underone monthto eleven years, with varying renewal and termination options.

The following table presents components of lease expense (in thousands):

(1)

Total lease expense includes short-term lease expense and sublease income which is immaterial to the Company. Total lease expense does not include right-of-use asset impairment charges, common area maintenance charges and other non-lease components.

Supplemental cash flow information related to leases is as follows (in thousands):

Weighted-average remaining lease term and discount rate were as follows:

At November 2, 2024, the maturities of our operating leases liabilities are as follows (in thousands):

(1)

Amounts in the table do not include contingent rent, common area maintenance charges and other non-lease components.

At November 2, 2024, we have excluded from the table above$2.3 million of operating leases that were contractually executed, but had not yet commenced. These operating leases are expected to commence by the end of fiscal 2024.

5. Commitments and Contingencies

Purchase Commitments—At November 2, 2024, we had outstanding purchase orders to acquire merchandise from vendors of$161.0 million. We have an option to cancel these commitments with no notice prior to shipment, except for certain private label 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 condensed 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.

On October 14, 2022, former employee Seana Neihart filed a representative action under California’s Private Attorneys General Act, California Labor Code section 2698 et seq (“PAGA”), against us. An answer to the complaint was filed on December 8, 2022. A first amended complaint was filed on February 8, 2023 adding Jessica King as a plaintiff. The lawsuit alleges a series of wage and hour violations under California’s Labor Code. Zumiez has answered the complaint. We are in the process of investigating the claims and we intend to vigorously defend ourselves.

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 historical claims experience and actuarial and other assumptions. The self-insurance reserve at November 2, 2024 and February 3, 2024 was$1.6 million and$1.7 million, respectively.

6. Revolving Credit Facilities and Debt

We were previously parties to a Credit Agreement with Wells Fargo Bank, N.A. (the “Bank”) that provided us with a senior secured credit facility (“credit facility”) for working capital and other general corporate purposes of up to $25.0 million through December 1, 2024. Effective as of May 3, 2024 (the “Termination Date”), we terminated the Credit Agreement with the Bank. There wereno borrowings or open commercial letters of credit outstanding under the credit facility as of the Termination Date. At the time of the Termination Date, there were $3.4 millionin issued, but undrawn, standby letters of credit that have been transitioned to restricted deposits with the Bank. We expect to enter into a new credit facility with similar borrowing capacities with a new lender during the fourth quarter of fiscal 2024.

There wereno early termination penalties incurred by us in connection with the termination of the Credit Agreement. As referenced above, there wereno borrowings or open commercial letters of credit outstanding under the credit facility and we believe that our significant sources of liquidity continue to be funds generated by our operating activities and available cash, cash equivalents and current marketable securities. Termination of the Credit Agreement allows us to discontinue paying an unused commitment fee of 0.50% of the credit facility amount per annum.

There wereno borrowings outstanding under the credit facility at February 3, 2024. We hadno open commercial letters of credit outstanding at November 2, 2024 nor outstanding as of February 3, 2024. We had$2.7 million in issued, but undrawn, standby letters of credit at November 2, 2024 and$3.4 million in issued, but undrawn, standby letters of credit at February 3, 2024

7. 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:

•

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.

The following tables summarize assets measured at fair value on a recurring basis (in thousands):

The Level 2 marketable securities include U.S treasury and government agency securities, corporate debt securities, state and local municipal 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 and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as fixed assets, operating lease right-of-use-assets, goodwill, other intangible assets, and other assets. These assets are measured at fair value if determined to be impaired. During the three months ended November 2, 2024, we recognized $0.2 in impairment losses related to fixed assets and $0.4 million for three months ended October 28, 2023. During the nine months ended November 2, 2024, we recognized $0.4 million in impairment losses related to fixed assets and $0.7 impairment losses for nine months ended October 28, 2023. During the three months ended November 2, 2024, we recognized less than $0.1 million in impairment losses related to operating lease right-of-use assets and $0.2 million for the three months ended October 28, 2023. For the nine months ended November 2, 2024, we recognized $0.1 million impairment loss related to operating lease right-of-use assets and $0.2 million for the nine months ended October 28, 2023.

8. Stockholders’ Equity

Share Repurchase—On June 5, 2024, Zumiez Inc. approved the repurchase of up to an aggregate of $25 million of its Common Stock (the “Repurchase Program”). The repurchases will be made from time to time on the open market at prevailing market prices. The Repurchase Program is expected to continue through June 30, 2025, unless the time period is extended or shortened by the Board of Directors. As of November 2, 2024, we have used all of $25 million approved amount to repurchase common stock under the share repurchase program.

The following table summarizes common stock repurchase activity during the three months andnine months ended November 2, 2024. There wereno common stock repurchases during the three months and nine months ended October 28, 2023. (in thousands, except per share amounts):

Accumulated Other Comprehensive Loss —The components of accumulated other comprehensive loss and the adjustments to other comprehensive loss for amounts reclassified from accumulated other comprehensive loss into net income (loss) are as follows (inthousands):

(1)

Other comprehensive loss before reclassifications was$0.2 million, net of taxes for net unrealized losses on marketable securities for the three months ended November 2, 2024. Other comprehensive loss before reclassifications was$0.2 million, net of taxes for net unrealized losses on marketable for the three months ended October 28, 2023. There wereno net unrealized losses, net of taxes, reclassified from accumulated other comprehensive loss for the three months ended November 2, 2024 and October 28, 2023, respectively.

(2)

Other comprehensive income before reclassifications was$0.6 million, net of taxes for net unrealized losses on marketable securities for the nine months ended November 2, 2024. Other comprehensive income before reclassifications was$0.8 million, net of taxes for net unrealized losses on marketable securities for the nine months ended October 28, 2023. There wereno net unrealized losses, net of taxes, reclassified from accumulated other comprehensive loss for the nine months ended November 2, 2024 and October 28, 2023, respectively.

(3)

Foreign currency translation adjustments are not adjusted for income taxes as they relate to permanent investments in our international subsidiaries.

9. Equity Awards

We maintain several equity incentive plans under which we may grant incentive stock options, non-qualified stock options, stock bonuses, restricted stock awards, restricted stock units and stock appreciation rights to employees (including officers), non-employee directors and consultants.

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 to earnings using a 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.

Total stock-based compensation expense is recognized on our condensed consolidated statements of income (loss) as follows (in thousands):

At November 2, 2024, there was$11.0 million of total unrecognized compensation cost related to unvested stock options, restricted stock awards and restricted stock units. This cost has a weighted-average remaining recognition period of 1.2 years.

The following table summarizes restricted stock awards and restricted stock units, collectively defined as “restricted equity awards” (in thousands, except grant date weighted-average fair value):

We had 0.5 million stock options outstanding at November 2, 2024 with a grant date weighted average exercise price of$21.24 and 0.4 million stock options outstanding at February 3, 2024 with a grant date weighted average exercise price of$26.51.

10. Income (Loss) per Share, Basic and Diluted

The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts):

There were 0.1 million and 0.4 million anti-dilutive common shares related to stock-based awards for the three months ended November 2, 2024 and October 28, 2023, respectively. There were 0.5 million and 0.5 million anti-dilutive common shares related to stock-based awards for the nine months ended November 2, 2024 and October 28, 2023, respectively.