Zumiez Inc (ZUMZ)

Item 2: 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 condensed 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” in our Form 10-K filed with the SEC on March 12, 2026 and in this Form 10-Q.

Forward-looking 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 below under the heading “Risk Factors” and in “Item 1A Risk Factors” of our Form 10-K referred to in the preceding paragraph. 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.

Fiscal 2026 is the 52-week period ending January 30, 2027. Fiscal 2025 was the 52-week period ending January 31, 2026. The first three months of fiscal 2026 was the 13-week period ended May 2, 2026. The first three months of fiscal 2025 was the 13-week period ended May 3, 2025.

“Zumiez,” the “Company,” “we,” “us,” “its,” “our” and similar references refer to Zumiez Inc. and its wholly-owned subsidiaries.

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 businesses 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, 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.

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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, incentive compensation, stock-based compensation 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 condensed consolidated statements of loss as a percent of net sales:

Three Months (13 weeks) Ended May 2, 2026 Compared With Three Months (13 weeks) Ended May 3, 2025

Net Sales

Net sales were $193.3 million for the three months ended May 2, 2026 compared to $184.3 million for the three months ended May 3, 2025, an increase of $9.0 million, or 4.9%. The increase in sales was primarily driven by a 4.0% increase in comparable sales and impact of foreign exchange rate, partially offset by the net closure of 16 stores subsequent to May 3, 2025. By region, North America sales increased $5.8 million or 3.9% and other international sales (which consists of Europe and Australia sales) increased $3.2 million or 9.1% for the three months ended May 2, 2026 compared to the three months ended May 3, 2025. Excluding the impact of changes in foreign exchange rates, North America sales increased $5.5 million or 3.7%, while other international sales were relatively flat for the three months ended May 2, 2026 compared to the three months ended May 3, 2025.

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Comparable sales increased 4.0% (reflecting a 4.4% increase in North America and a 2.2% increase in other international) for the three months ended May 2, 2026, driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction increased due to an increase in both average unit retail and units per transaction. By category, comparable sales were primarily driven by increases in men's clothing, hardgoods, women's clothing, accessories, partially offset by a decrease in footwear.

Gross Profit

Gross profit was $61.3 million for the three months ended May 2, 2026 compared to $55.3 million for the three months ended May 3, 2025, an increase of $6.0 million, or 10.9%. As a percent of net sales, gross profit increased 170 basis points for the three months ended May 2, 2026 to 31.7%. The increase was driven by 70 basis points of improvement in product margin (defined as net sales minus cost of goods sold excluding shrinkage, buying, occupancy, distribution and warehousing costs and freight costs for store merchandise transfers), 50 basis points of leverage in store occupancy costs related to both higher sales and closure of underperforming stores, 30 basis points of benefit in web shipping cost, and 20 basis points of benefit from decreased inventory shrinkage.

Selling, General and Administrative Expenses

Selling, general and administrative expense was $76.5 million for the three months ended May 2, 2026 compared to $75.2 million for the three months ended May 3, 2025, an increase of $1.3 million, or 1.8%. SG&A expenses as a percent of net sales decreased 120 basis points for the three months ended May 2, 2026 to 39.6%. The decrease was driven by 150 basis points of benefit in the current year related to a $2.9 million litigation settlement in the first quarter of last year, 50 basis points of efficiencies in store wages due to higher sales, 40 basis points in non-wage store operating costs related to leverage in store depreciation due to higher sales, partially offset by 70 basis

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis compares the change in the consolidated financial statements for years ended and January 31, 2026 and February 1, 2025 and should be read together with our consolidated financial statements, the accompanying notes, and other information included in this Annual Report. In particular, the risk factors contained in Item 1A may reflect trends, demands, commitments, events, or uncertainties that could materially impact our results of operations and liquidity and capital resources. For comparisons of years ended February 1, 2025 and February 3, 2024, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of our Annual Report on Form 10-K for the year ended February 1, 2025, filed with the SEC on March 13, 2025 and incorporated herein by reference.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled” Risk Factors” and in other parts of this Annual Report on Form 10-K. See also the section titled “Note Regarding Forward-Looking Statements” in this report.

For Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) related to the year ended February 3, 2024, refer to this same section in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 14, 2024.

Fiscal 2025—A Review of This Past Year

Fiscal year 2025 maintained the positive growth trajectory established in early 2024, with the fourth quarter representing the seventh consecutive quarter of comparable sales increases. Strategic focus on developing trends within private label brands delivered favorable outcomes, as sales from these brands exceeded 30% of total revenue, setting a new fiscal-year record. All categories experienced positive comparable sales in 2025 with the exception of footwear. The Hardgoods category, which had experienced negative growth for several years, returned to positive growth in the second quarter and sustained that momentum through year-end. North America was the primary driver of sales growth, achieving eight consecutive quarters of positive comparable sales with product margin growth in each quarter. In Europe, efforts were redirected toward full-price selling, supported by reduced promotions and improved product assortments. Although these changes presented challenges for overall sales, product margins in Europe improved over 250 basis points year-over-year and strengthened as we moved through the year. Despite negative sales trends during the fourth quarter, we saw strong bottom line growth with product margin improvements and expense discipline.

Consolidated product margin improved 90 basis points year-over-year despite the global supply chain instability driven by tariffs. Product margin growth was possible during the year through shifting the geography of supply, working with our vendors on pricing and where necessary, adjusting retail prices. Gross margin improved by 170 basis points from 2024 with the product margin noted above being the main driver. Beyond product margin, we continue to try to leverage occupancy costs through comparable sales growth and closed 17 underperforming stores. We had outsized growth in our general and administrative expenses in 2025 primarily driven by $3.6 million in wage and hour litigation settlements in California and increased incentive compensation of $4.4 million due to North America achievement of target results. These items resulted in a 10 basis point increase in Selling General and Administrative expenses to 34.0% of sales. Overall earnings per share increased to $0.78 from a loss of $0.09 per share in 2024. The overall growth in earnings was driven primarily by better operating results but was also aided by our continued return of value to our shareholders through a share repurchase program, purchasing 2.7 million shares at an average price of $14.18 for $38.3 million during the year. The purchase of shares was worth $0.10 to earnings per share.

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As a leading global 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 our platforms. We remained committed to serving our customers' desire for newness and discovery through launching well over 150 new brands in 2025. We made investments over several years to integrate the digital and physical channels creating a seamless shopping experience for our customers. We are continuing to deliver our online orders in North America from our stores, which provides substantial improvements in the speed of delivery to our customers, eliminates the need to manage two pools of inventory separately for digital and physical demand, and creates a single cost structure for execution of both physical and digital sales. Internationally we continue to see deeper penetration of localized fulfillment and are in various stages of roll-out in different countries. 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, maximizing the productivity of inventory, 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 (loss) per share for fiscal 2025 compared to fiscal 2024:

(1) The increase in net sales was primarily driven by an increase in dollars per transaction, partially offset by a decrease in transactions. The increase in dollars per transaction was driven by an increase in average unit retail, and an increase in units per transaction. For the year, our largest growth in comparable sales was in our women’s category, followed by men’s, hardgoods and accessories. Footwear was the only category with a decrease in comparable sales.

Fiscal 2026—A Look At the Upcoming Year

In fiscal 2026, our focus will continue to be serving the customer by bringing differentiated products in a unique sales experience along with strategic investments focused on enhancing the customer experience while increasing market share and creating operational efficiencies to drive long-term operating margin expansion. After a difficult period through COVID and the related aftermath marked by stimulus, tariffs, inflation and strained discretionary income, the business began recovering in 2024 and returned profitability in 2025. The balance sheet remains strong with $160.6 million in cash and marketable securities at the end of fiscal 2025 with no debt. We are in a solid financial position providing the security to manage through potential difficulties, while also investing strategically in important long-term initiatives and returning value to our shareholders.

While our growth and return to positive earnings per share in fiscal 2025 have us optimistic, the macro-economic environment in 2026 remains unclear. The impact of multiple years of compounding growth in the cost of consumer goods continues to put pressure on the discretionary income of our customer base as consumer savings balances decrease and consumer debt grows. The impact of global events and regulation change could also continue to make things less clear on the consumer and potentially result in a pullback of spending. However, with sales momentum as we exit fiscal 2025, our focus will be to further capitalize on the positive trends in the business and provide the newness that our customers expect from Zumiez. Trend cycles continue to move quickly, and we will invest in our ability to better understand our customers, communicate with them and serve their needs to drive market share gains.

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

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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 ("COGS") 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.

Selling, general and administrative expenses consist prim

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