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Zumiez (NASDAQ:ZUMZ)Q4 2018 Earnings Conference CallMarch 14, 2019, 5:00 p.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:
Operator
Good afternoon, ladies and gentlemen, and welcome to the Zumiez Inc. Fourth Quarter Fiscal 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of this conference.
Before we begin, I would like to remind everyone of the company's Safe Harbor language. Today's conference call includes comments concerning Zumiez Inc. business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties, actual results may differ materially, additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available on Zumiez filing with the SEC.
At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir.
Richard M. Brooks -- Chief Executive Officer
Hello. And thank you, everyone, for joining us on the call. With me today is Chris Work, our Chief Financial Officer. I'll begin today's call with a few brief remarks regarding our fourth quarter performance, and I'll share some thoughts about the future before handing the call over to Chris, who will take you through the numbers. After that, we'll open up the call to your questions.
For the third year in a row, we delivered strong results in the all important holiday quarter. Comparable sales increased 3.9%, which was above the high end of our initial guidance range of flat to up 2%. As you recall last year include the 53rd week and other adjustments that impacted sales and profitability that Chris will walk you through shortly, but on a comparable basis, we were very pleased with our performance. The combination of our unique product assortment, product margin expansion fueled by strong full price selling, expense leverage and reshaping of our business had led to a 21% fourth quarter compound annual growth rate in operating profit over the last three years.
Earnings per share increased to $1.18 compared to our original projection of between $1.2 and $1.8. The fourth quarter represented a strong finish to a very successful year. For 2018, comparable sales increased 5.6%. Earnings per share reached $1.79, the highest level in our history, and our cash position grew over 35% to $165 million. Our ongoing success is a direct result of the hard work of our teams -- the hard work our teams have done positioning Zumiez over the last decade to serve and win with today's empowered consumer. It starts with product and having the right product and brands that our customers are looking for. For Zumiez, this means a distinct mix of leading and emerging brands that are not broadly distributed. We've been able to consistently achieve this balance through the strong relationships we forged with our brand partners. This includes clearly articulating Zumiez's culture driven lifestyle brand position and showcasing our ability to connect with their target audience in authentic, engaged environment that is uniquely curated by our people.
Over the years, we spent significant time and resources, improving our localized merchandise assortments through investments in our people and technology that enhances the customer experience at each touch point. Our sales teams, many of whom are also our customers are in tune with the local and national trends that are important to our customers and can speak authentically to them.
The next critical -- the next factor critical to our success is speed. We're already faster to most of our competitors due to our decision three years ago to shut down our e-commerce fulfillment center and deliver all digital orders out of our stores. Not only did this concept of localized fulfillment mean, we now have one cost structure to leverage, which we believe is making it easier to expand operating margins in our current results and over the long-term. We can now get product into the customers hands faster, by reducing the click-to-order processing time, cutting down the shipping distance to the customer, and also offering in-store pickup. We're continuing to improve at executing this critical component of our retail model by reducing the number of split orders and improving order routing to reduce outbound costs and better leverage store payroll.
Looking ahead, we are going to get faster in every aspect of serving and meeting customers' needs than we are today. This be driven over the next few years by getting to our customers even more intimately, through improved digital interactions and enhanced in-store experiences that reflect our strong cultural foundation. Finally, we've taken our operating model and expanded it internationally in order to identify consumer trends that emerged locally and grow globally around the world and achieved the scale necessary to work together with our brand partners in serving our customers globally. Our organic build-out of Canada started in 2011, and the acquisitions of Blue Tomato in 2012, and Fast Times in 2016, have helped us establish a strategic physical presence in seven countries across three continents with a digital platform that allows us to reach even further. We are applying learning's and best practice in each of our markets to ensure that we are on top of the latest fashion trends and brand cycles. We can now launch them anywhere in the world and quickly spread globally due to the proliferation of smart devices and social media. Looking ahead to 2019 and beyond, we are confident that Zumiez enduring culture driven lifestyle brand position and proven ability to adapt to industry change has the company well positioned to not only with today's empowered consumer, but also a win with the consumer over the next five, 10 and 20 plus years as buying behaviors continue to evolve.
With that, I'll hand the call over to Chris for his review of our financials. Chris?
Christopher C. Work -- Chief Financial Officer
Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our fourth quarter and full year 2018 results. I'll then provide an update on February sales, before discussing our first quarter guidance and some perspective on how we're thinking about the full year.
For the 13-week fourth quarter, net sales decreased $3.7 million or 1.2% to $304.6 million, compared to $308.2 million for the 14-week fourth quarter of 2017. Contributing to this decrease was a reduction in net sales of $12.6 million related to the shift in the retail calendar, as well as an adjustment to deferred revenue related to our STASH loyalty program, were $3.8 million in the prior year, helping to partially offset these headwinds was positive comparable sales growth of 3.9% and the net addition of nine stores since the end of last year's fourth quarter.
During the 2018 fourth quarter, our comparable sales were driven by an increase in transaction volume, as well as an increase in dollars per transaction. The increase in dollars per transaction resulted from higher average unit retail, partially offset by lower units per transaction. During the quarter, all of our categories comp positive, while our footwear category being the largest positive comp in category, followed by men's, accessories, hardgoods and women's. We had no negative comping categories during the quarter.
From a regional perspective, North America net sales decreased 1.9% to $260.5 million. Other international net sales, which consists of Europe and Australia, increased 3.5% to $44.1 million, excluding the impact of foreign currency translation, North America net sales decreased 1.6% and other international net sales grew 8.6% for the quarter. Fourth quarter gross profit was $113.9 million, a decrease of $0.7 million or 0.6% compared to the fourth quarter 2017.
Gross margin was 37.4% in the quarter, an increase of 20 basis points compared to 37.2% a year ago. The increase was primarily driven by 60 basis points improvement in product margin and 40 basis point improvement in inventory shrinkage. These improvements were partially offset by an 80 basis points decrease related to the recognition of deferred revenue from our STASH loyalty program in the year ago period, which did not repeat this year. SG&A expense was $76.2 million in the fourth quarter compared to $77.7 million a year ago. SG&A as a percentage of net sales was 25%, compared to 25.2% in the prior year. The 20 basis point decrease was primarily driven by 40 basis points of leverage in our store operating costs, and 10 basis points of leverage in corporate costs. These improvements were offset by 30 basis points of deleverage due to STASH loyalty program, revenue adjustments booked in the prior year.
Operating income in the fourth quarter 2018 was $37.7 million or 12.4% of net sales, an increase of 2% compared with the prior year operating income of $36.9 million or 12% of net sales in the fourth quarter 2017. The prior year fourth quarter benefited from the extra week worth approximately $3.7 million in operating profit and the STASH loyalty program revenue adjustment of approximately $3.8 million.
Net income for the fourth quarter was $29.6 million or $1.18 per share, compared to net income of $19.9 million or $0.80 per share for the fourth quarter of 2017. Fourth quarter 2018 was positively impacted by approximately $4.3 million or $0.17 per share related to US tax law changes. It is also important to note that 2017 fourth quarter EPS included the following impact. The extra week of sales had a positive impact in 2017 of $0.10 per share. The STASH loyalty program revenue adjustment had a positive impact on 2017 of $0.10 per share. 2017 included $3.4 million valuation allowance booked against certain deferred tax assets in Europe were negative $0.14 per share and a 2% -- $0.02 per share positive impact of US tax law changes effective January 1st, 2018.
The combined impact of these items improved 2017 net income and earnings per share by $2.08 million respectively. Our effective tax rate for the fourth quarter 2017 was 22.6% compared with 46.3% in the year ago period. The decrease was due to the reduction in the US federal tax rate, following the passage of tax reform in late 2017 and the prior year impact of the valuation allowance in Europe discussed above.
Turning to the full year result. Net sales for fiscal year 2018 were $978.6 million, an increase of $51.2 million or 5.5% from $927.4 million for fiscal 2017. Contributing to this increase was the positive comparable sales growth of 5.6%, and the net addition of nine stores in fiscal 2018, partially offset by the extra week in fiscal 2017 and the previously mentioned STASH loyalty program revenue adjustment.
By region, North America net sales increased $41.6 million or 5% to $869.3 million. Other international net sales, which consists of Europe and Australia, increased $9.6 million or 9.7% to $109.3 million. Excluding the impact of foreign currency translation, North America net sales grew 5.1%, and other international net sales grew 8.8% for the year. 2018 gross margin was 34.3% and increased 90 basis points from the prior year's gross margin of 33.4%. The increase was driven by leveraging of occupancy costs were 50 basis points, 40 basis points of improvement in inventory shrinkage and 20 basis point increase in product margin. These improvements were partially offset by a 20 basis point increase in shipping costs.
Annual SG&A expense was $274.9 million or 28.1% of net sales, compared to $261.1 million or 28.2% of net sales in 2017. The decrease as a percentage of net sales was driven by 40 basis points of leverage in our store costs, partially offset by 20 basis points increase in corporate costs. Operating margin in fiscal 2018 was 6.2%, compared to 5.2% in 2017. Our 2018 operating profit was $61.1 million, an increase of 25.3% from operating profit of $48.8 million in 2017.
Full year net income was $45.2 million or $1.79 per share, compared to 2017 net income of $26.8 million or $1.08 per share. Our effective income tax rate for fiscal 2018 was 27.5% compared to 44.6% for fiscal 2017. The change 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 US federal tax legislation, that lowered the US federal statutory rate from 35% to 21% effective January 1st, 2018, as well as an additional $3.4 million or $0.14 per share related to the previously discussed valuation allowance recorded in 2017.
Turning to the balance sheet. Cash and current marketable securities increased 35.6% to $165.3 million as of February 2nd, 2019, up from $121.9 million as of February 3rd, 2018. This increase was driven by $65.3 million in cash flow from operations, partially offset by $21 million of capital expenditures, primarily related to new store growth and remodels.
During 2018, we added 13 store locations, including five in North America, seven in Europe and one in Australia. As we have discussed, we have continued to -- continually evaluating our physical store presence to ensure that we have the right number of stores in the right locations within each trade area. As a result, in 2018 we closed four stores, bringing our net store openings to nine for the year. We ended the year with 707 locations, including 658 in North America, 41 in Europe and eight in Australia. We ended fiscal 2018 with $129.3 million in inventory up 2.7% from $125.8 million at the end of fiscal 2017. During fiscal 2018, we did not repurchase any shares of our common stock. As of February 2nd, 2019, we had $75 million remaining in our stock repurchase authorization.
Now, to our February sales results. Total net sales for the four-week period ended March 2nd, 2019, decreased 3.1%, compared to the four-week period ended March 3rd, 2018. Our comparable sales decreased 3.8%, during the four-week period ended March 2nd, 2019, compared to the comparable sales increased to 9.2% for the four-week period ended March 3rd, 2018. The comparable sales decrease was driven by a decrease in transactions and a decrease in dollars per transaction. Dollars per transaction decreased for the four-week period due to a decrease in units per transaction, partially offset by an increase in average unit retail.
During the four-week period, the accessories category was our highest positive comping category, followed by hardgoods. Men's was our largest negative comping category followed by women's and footwear. Going forward, we will be discontinuing the reporting of monthly sales results. Our monthly results can include variability from items, such as holiday timing, retail calendar shift and other marketing-related activities, that can lead to misinterpretations of business performance. With each of our quarterly earnings releases though throughout the year, we will plan and update you on quarter-to-date comparable sales results to provide directional information about business performance along with our guidance for the current quarter.
Looking at guidance for the first quarter of 2019. Once again, I'll start off by reminding everyone that formulating our guidance involve some inherent uncertainty and complexity in estimated sales, product margin and earnings growth, given the variety of internal and external factors that impact our performance. With that in mind, we currently expect that comparable sales will be between negative 2% and flat to the prior year for the first quarter of 2019 with total sales in the range of $202 million to $206 million. Consolidated operating margins are expected to be between negative 2% and negative 1%. At the high end of our guidance, net loss per share would improve by approximately 30% from the first quarter of fiscal 2018. We anticipate that our loss per share will be between $0.13 -- a negative $0.13 and negative $0.07, compared to negative $0.10 loss per year in the prior year first quarter.
Now I want to give you a few thoughts on how we are looking at 2019. We are building on 10 consecutive quarters of positive comparable sales growth with a two-year annual comparable sales stack of 11.5%. As we look to 2019 and beyond, we continue to believe that the investments we've made in our infrastructure, creating a seamless sales experience for our customers. Our unique approach to merchandising, as well as those investments we continue to make in the Zumiez team, will drive long-term top and bottom line growth.
With that in mind, we anticipate that we will grow consolidated comparable sales in fiscal 2019 in the low-single digit range. In fiscal 2018, we achieved peak product margins, improving from the previous high point in 2017, despite a heavily branded cycle resulting in a reduction of our private label share of 370 basis points. As we look to 2019, we anticipate that product margins will be flat to modestly accretive.
We continue to manage costs across the business, with the mature concepts of North America focused on leveraging at a low-single digit comparable sales growth. Internationally, we are focused on managing costs well within our current sales and unit growth rates and driving our concepts closer to breakeven, reducing the impact of the losses on the overall business. We are currently planning our business assuming an annual effective tax rate of approximately 27% as compared to our prior year rate of 27.5%. Diluted earnings per share for the year is currently planned between a $1.84 to $1.94 or 2.5% to 8.5% growth year-over-year.
We are planning to open approximately 14 new stores in 2019, including five stores in North America, seven stores in Europe, and two stores in Australia. We expect capital expenditures for the full 2019 fiscal year to be between $21 million and $23 million compared to $21 million in 2018. The majority of the capital spend will be dedicated to new store openings and planned remodels. We expect the depreciation and amortization will be approximately $26 million, down slightly from the prior year. We are currently projecting our share count for the full year to be approximately 25.5 million shares. Any share repurchases during the year will reduce our share count from this estimate.
One final note, as I outlined a minute ago, we ended 2018 with cash and cash equivalents of approximately $165 million and no debt. This represents our highest ending cash balance since 2011, and we remain encouraged by the businesses ability to generate strong core operating profit growth and grow cash.
From a cash strategy perspective, we remain focused on first utilizing our growing cash position to generate increased shareholder value within the entity through investments that lead to increased sales and margin or decreasing expenses. Beyond that, we look for the right investment outside the core business that we believe culturally aligned with our belief, have growth potential and will be accretive to our shareholders. And lastly, we are focused on returning value to our shareholders through share repurchases and/or dividends.
And with that, operator, we would like to open the call up to questions.
Questions and Answers:
Operator
Certainly. (Operator Instructions) And our first question comes from the line of Sharon Zackfia with William Blair. Your line is now open.
Sharon Zackfia -- William Blair -- Analyst
Hi. Can you hear me, OK?
Richard M. Brooks -- Chief Executive Officer
Yes.
Sharon Zackfia -- William Blair -- Analyst
Okay. Great. I have a couple of questions. I guess weather has been talked about a lot for February, so if you can give us any context on what you might have seen with the weather and how you expect those first quarter downfall from a cadence perspective, that would be helpful. And then secondarily on the SG&A growth rates, you know in terms of dollars, I think you grew at a mid single digit rates in 2018, Is that kind of the right cadence going forward. And I know there is some (inaudible) quarter-to-quarter but just trying to ascertain what that leverage point is on the SG&A?
Christopher C. Work -- Chief Financial Officer
Sure. Yes. I think, I'll start with the February results and overall February was a little bit of a choppy month, it definitely started better and then finish better. We had a little bit of slowdown in the middle, so I think we did experience some challenges with weather, specifically some of the variability around the country and on the West Coast, and I think that did impact the quarter, it got stronger as we move through. I think there's all -- probably also some timing related to the tax refunds in there and how those dollars are coming across that impacted the quarter. So, a slower start to February. Our first week of March was better and kind of got us to where we are in the comp guidance today. Obviously, we're still confident that as we move through the quarter we're going to gain some of that traction back and it will have better results for the remaining parts of March year and then into April, which would be consistent, I think with what we've seen over the last six months, where the periods in between peaks have gotten a little bit softer and we've done better in the peaks and that's currently how we're planning the first quarter specifically around the peak of Easter in April. From an SG&A perspective, I think as we move forward, obviously, we continue to try to manage this to the best of our ability on a low-single digit comp, our goal would be to try to get some leverage out of this, but it is challenging, when we have things like store wages being one of the big headwinds in our model, and that obviously exists within SG&A, so we're planning SG&A today to sort of grow on course with sales for 2019, and that's reflected in the guidance that we laid out here earlier in our prepared remarks.
Operator
Thank you. And our next question comes from the line of Jeff Van Sinderen with B. Riley. Your line is now open.
Jeff Van Sinderen -- B. Riley -- Analyst
Hi. Just a follow-up on the -- I think you said you're going to provide quarter-to-date comps. I wasn't sure if that starts now, because I know you gave the February comp, and you mentioned something on March a little bit, but is that something you're providing now, or is that something we need to wait for next -- the next call?
Christopher C. Work -- Chief Financial Officer
Well. Jeff, since you asked, we'd be happy to provide it. So, our plan with -- our plan with monthly comps, just to kind of reiterate it, obviously, we think that due to some of the variability they cause, as well as kind of where the industry has gone, we just feel like it's probably time to stop doing the monthly comps. That said, we are very focused on providing some visibility. So, our thought process is with each of our earnings calls, which as you know typically happened about a month after the close of the period or the quarter. We will kind of release where we are, quarter-to-date. And so, as we said in our release here were -- for February were down 3.8% comp, but for the five-week period that's been completed, were down 2.8%. So, as I said on Sharon's question, we have seen some improvement in the first week of March, and that's giving us some confidence to get where we set the guidance here of negative two to flat.
Richard M. Brooks -- Chief Executive Officer
And for me, Jeff, I'd just add to that, again, as Chris had laid this out that will mean that investors will get to hear about the August period and important back-to-school cycle in our call that's typically right after in late August, early September, and then of course also we'll get to be able as we discloses the third quarter results, we'll get that share with you, Thanksgiving weekend, that results typically depending on the calendar. So, I think those are important touch points for giving in the quarter-to-date comps.
Jeff Van Sinderen -- B. Riley -- Analyst
Makes sense. And then, if you can just touch maybe on the warmer weather markets, I'm just wondering if you're seeing a difference in selling spring merchandise in the warmer weather markets, and then also maybe if you have any concern about getting promotion out there, just given you're not the only one, so I think dealing with weather out there and sometimes it does get promotional?
Christopher C. Work -- Chief Financial Officer
Yes. I mean, I think, in regards to the weather, we definitely saw the strength of our business with -- away from the warm weather areas. So, we had some more challenging results on the West Coast here, and as we think about markdowns and those types of things, I think we always feel like that's out there, that's not really our game. We have not been a big markdown retailer. And so, our focus is still selling at full price. I think we feel good about where our inventory position is, and we feel good with obviously the Easter holiday coming up, that we'll continue to kind of work in those areas where inventory was a little bit slower, but I think we're still optimistic, we'll have a good start to spring and that Easter will be a good time period for us.
Jeff Van Sinderen -- B. Riley -- Analyst
Okay. Good to now. And then if I could just squeeze in one more. Anything you'd like to add on your business performance in Europe, and I guess what the outlook is there?
Christopher C. Work -- Chief Financial Officer
Sure. I'll go ahead and take that, and I think from an overall perspective, we've kind of laid out that Europe has taken some pretty meaningful investment to this point. We think we're at a spot now where we can really leverage that investment here over the long-term. We're pretty optimistic about the fact that we've opened now stores in four distinct countries. We have a very strong web platform that really reaches across Europe, and as we look at this business really over the last six years of owning it, it's a business that we made some investments in, we really drove the profitability in 2015. We had a tougher year in 2016, I should say we drilled very close to -- very close to profitability, we are close to breakeven in 2015. We had a tough year in 2016. But now we have two years of -- kind of a high low-single digit comp, and a low mid-single digit comp. So, we have a couple of years of positive growth here, which I think is actually pretty impactful, given the fact that Europe's economy has not been as strong as the US's economy. We have had some challenges with the Brexit impact on the market, and I think there's still a lot of consolidation going on in Europe. So, we feel good about the path forward in the region. Obviously, as we said in our prepared remarks, our focus there is to plan a good solid comp gains and expense growth pretty meaningfully below that, because I think as I said earlier, we have made some of those investments, and we can push this business closer to profitability and then ultimately over the hump, and this should be something we can get profitable here in the next few years, so we are encouraged. Our 2018 results were better than our 2017 results, not quite as much as we had hoped, but again I think directionally we feel like it's going in the right direction. In the last couple of classes of stores we've opened have been pretty good classes of stores. So again, I think we've kind of -- we are no longer testing in that market, we have a pretty good roadmap for what we're doing, and we're just going to continue to go and execute.
Jeff Van Sinderen -- B. Riley -- Analyst
Okay. Thanks, and good luck for the rest of the quarter.
Richard M. Brooks -- Chief Executive Officer
Thank you, Jeff.
Operator
Thank you. And our next question comes from the line of Mitch Kummetz with Pivotal Research. Your line is now open.
Mitch Kummetz -- Pivotal Research -- Analyst
Yes. Thanks for taking my questions. Let me just follow-up on Jeff's question about Europe. Chris, in your response, I mean the businesses are not profitable yet, it sounds like, again, you feel good about the past, like where you are in terms of developing the countries, you're planning expense growth below comp growth, you're pushing closer. I just -- I guess what I wanted, I mean, is there where you could just tell us what the EBIT is on that business. I just like to know how close to profitability you guys are. And it doesn't sound like you can get there in 2019. So, it maybe doesn't sound like you're that close -- is there anything, any more color you can give on the actual kind of numbers around the profitability?
Christopher C. Work -- Chief Financial Officer
Yes. I'm going to hold on giving that overall profitability. I mean, this is not something that's losing tens of millions of dollars, this is a business it's losing millions of dollars, and I think that it's a business that's continue to grow. And as I said has needed some -- needed investment to do that, and so our focus now is leveraging that. We feel like this is a business that, again, will get closer to breakeven in 2019. I think we have a good chance here in the next two to three years to drive it over that hump. And so, it's not significant, in regards to overall losses, but it is millions of dollars.
Richard M. Brooks -- Chief Executive Officer
And I'd just add to -- Mitch, I'd just add to Chris's response that, as I think about what we're doing in Europe, it's, we are really building and replicating the omnichannel platform that we built here in the US, so to do that takes the investment of building out the physical presence in the markets. And I will tell you that from a consumer behavior perspective, we are not seeing any significant differences between what happens when we build out this marketplace. We're not only, as Chris said, that had a few good years now of classes of stores in terms of the performance, but we also see that those stores drive the digital business in those markets, is significantly higher than the average growth in other regions where we don't have our physical presence. So, all the indicators are for us in this -- in our European business are that the consumer behavior around omnichannel is they're all in place, they're all like we saw in the US and like we've seen in Canada, and I feel that we're on the right track in terms of what we need to do. And then from my broader perspective over the long-term, building these platforms, I think that what we're doing is building a platform business to serve, again, a customer is going to demand greater speed, because brands emerge -- can emerge anywhere in the world and for the first time ever, become and all store buy from us around our global businesses in as soon as three years. So, what we're able to do, if we can continue to do build out these platforms is we'd be able to, I think really revolutionize the way that we work with young brands. So, we can reinvent that, the supply chain that takes deliver product and deliver products faster than anyone in the world to the major developed countries in the world. So, we can maximize sales around these efforts. So it's that, again, this is that virtuous wheel as we build markets, as we gain scale, we can serve our brand partners better and deliver better value for everyone, most importantly the customer. So just to put that in perspective, I mean it's going to take a while to build out Europe, this is a -- it's a big volume country and opportunity in front of us, so it's going to take a while. But again, we've made a lot of key investments -- technology, infrastructure, stores, and we have a ways to go, but I think we're on the right track and most importantly, we're on the right track to serve what customers are going to demand, and I think demand even more over the next five and 10 years.
Mitch Kummetz -- Pivotal Research -- Analyst
Got it. That's helpful. Thanks, guys. And then in terms of category trends, I mean, you obviously gave the months, and you sort of noticed some things, I mean, we now had two months of sort of negative men's and women's apparel, although probably two terrible months to try to get a read-off of, and accessories has been positive for several months now. Hardgoods, I think is now positive for three months in a row. As you think about the categories, I know these things sort of ebb and flow overtime, I mean how should we be thinking about that for fiscal '19, is there anything that we can kind of read into that from what we've seen over the last few months plus?
Christopher C. Work -- Chief Financial Officer
Mitch, I would not read into a lot of it at this point. What I would actually comment on is I really actually think this is one of the strengths of our model. When you've been around the model for a long time, and I think you have a good handle on it, but we look at these groupings of categories, men's is at 41% of our sales, women's is at 14% of our sales, which has been big movement for them over the last couple of years. If I look at it just a few years ago, women's was down in the low 13% to 12%, and men's was at 34%. So, we've seen a great apparel cycle over the last few years. Now, more recently we've seen footwear start to gain traction again, and actually has risen to 17% of sales, and so for us we always kind of have certain things rising and certain things falling, we'd love to get them all going at the same time and from time to time we do. But this is kind of the strength of our business, and I think you put that coupled with the fact, as we said in our prepared remarks, I mean, 2018 represented our peak product margin after 2017 was our peak product margin before that. That coupled with private label decreasing almost 370 basis points as a percent of sales, and last year it did the same thing. So, private label penetration at the end of 2018 was around 13.5%, and it had been up over 20% just a couple of years ago. So, I think this shows the magnitude of the brand cycle that we're in, and at some point that will change, and I think we have a business that can react to that, whether it goes back to kind of more of a playing private label value consumer or whether it goes to a footwear or whether there's something accessories that pops. I think we're pretty happy with the makeup of the categories and how they're performing, and we're hoping we can get all of them up here in 2019.
Richard M. Brooks -- Chief Executive Officer
And Mitch, I would just add to that, again, as Chris said, you've known us for a long time that in prior years when we would see private label move up down, we would see margin movement of course, we would make the argument at that point in time. Well, that we'll see volume move, right, as we move out of branded cycles, we'll see AURs move, we'll see basket size move. I think what's amazing about the last couple of years as well, we've seen a major reduction in private label. We're driving peak product margins, is that the model -- our model today is more resilient than I think it's ever been. And I don't think in the past, we couldn't do what we could deliver on the kind of things deliver here, we would have done it differently, but to drive and what's really predominantly branded cycle, increased product margins by private label has fallen, I'm really super proud of what our teams have done and how we're operating in a way that is delivering real value for our shareholders, our customers, I think all the way around in this model, but it's more resilient, I think and I would say, Chris is more resilient in terms of how fast things are moving and how fast department trends shake around and adjust, and I don't see there is no early read here for 2019 relative to what we've seen here quarter-to-date.
Mitch Kummetz -- Pivotal Research -- Analyst
Okay. And then lastly on the cash strategy. I mean, you guys mentioned that there's still $75 million left on the authorization, you got a big cash balance at year-end. It sounds like share repurchases kind of toward the bottom end of -- how do you like to use your cash, but at some point, I mean, again, given why you have any authorization of the cash balance or maybe where the stock is, does that move up in terms of priority or...
Christopher C. Work -- Chief Financial Officer
Well. I guess, we do lists the buyback and other forms of dividends and other things, return value to shareholders, it's a third thing, means first and foremost, we're going to invest in the business and try to find ways to grow sales and product margin and reduce expenses. Secondly, we're going to look outside the business for growth vehicles, that we think are the right cultural fit and yet have a good run rate for growth and are accretive for our shareholders. And lastly, we'll look at buybacks and dividends. As it relates to the buyback overall, this is a $75 million buyback that has the availability to use up until the end of our fiscal 2019 year, our Board is something we review with our Board, our Board's focused on utilizing this as we think about how to utilize it, we believe in buying back our stock is a good investment, and we think our stock today is a good investment. That being said, we continue to be very opportunistic buyers. And well, again, I think there's value in our stock today. The historical volatility of our stock has shown that it can have some pretty wide wild swings, and a lot of those are related to our own performance, but as being a smaller stock that's tied to macro trends and retail industry trends and other things that impact us. So, we're going to try to be, I think that variability create some pretty unique buying opportunities for us, and we're going to try to be pretty opportunistic shareholders to maximize shareholder value.
Mitch Kummetz -- Pivotal Research -- Analyst
Great. Thanks, guys.
Richard M. Brooks -- Chief Executive Officer
Thanks, Mitch.
Operator
Thank you. And our next question comes from the line of John Morris with D.A. Davidson. Your line is now open.
John Morris -- D.A. Davidson -- Analyst
Hi. Thanks. And really nice work in that fourth quarter, very impressive gross margin. But first I want to ask a little bit, Rick, I think this would be for you, the localization and thank you for the clarity there. How would we expect that to unfold in terms of a positive impact on the business through 2019, that you would compare and contrast to 2018. And is that -- is the trade area initiative different to that, and if so, maybe talk a little bit about that and kind of where you are?
Richard M. Brooks -- Chief Executive Officer
Yes. I'm going to do at a higher level. And let Chris add any specifics relative to the model, because I know we have initiatives as we're planned into the model. So, I'm not going to get specific around the dollars. Those were built in both the investments, John, as well as the benefits we thought we could drive. Let me -- give an overview about how we're thinking about these initiatives around localization, and localization is bigger to be clear then localized fulfillment, right? We have a lot of localization initiatives. Our belief is that all consumers are local, but yet, want to be part -- and want to be part of local communities, but connected to global audiences too. So, we always think about how global and local, and local and global work together in this world. And we're seeing again evidence of that of how best brands move and local brands become global brands. That's all part of this concept of localization. Now, as it relates to year-over-year initiatives we are driving every year at improving like in our ability to improve the speed to our customers, reduce cost in the processing of digital orders and create just better experiences for our customers. We know that speed as we said in the script is super important to our customer, because they want the cool stuff, they want it fast. So, we have a whole series of initiatives that we're working on in this front, some of them relative to where we've been like on localized fulfillment that we expect to improve it again this year. And I know those expectations are built into the numbers and the guidance that Chris shared. And we'll be -- but to be clear this is also different than trade area, trade area is even a bigger idea. We really been working on localization within the concept that really a store, and how we serve to the customers around that store. Trade area is going to take this to another level, I think John, and we're at the early phase of that. We really have a significant amounts of -- I would say benefits planned in the budget at this point, but think about that as a next two and three years, I think we're going to make some major adjustments in how we do our business, we're going to get even better as good as we are at localization, so we're going to get even better in terms of planning total demand in marketplace to trade area concept, but it starts with really the clear definitions in unleashing their teams and really getting and moving on the same way. So, trade area is actually I think a little bit different than what we've talked about historically in terms of localization, which really is focused on -- as we focus on our communications around fulfillment, because we can definitely demonstrate the benefit of fulfillment. But there's a lot of moving pieces going on here, and I think some that are going to be tremendously impact over the next three years.
Christopher C. Work -- Chief Financial Officer
And John, I'll just quickly touch on to add to what Rick said, really the areas that we're focusing on from a localization standpoint, and where I think we've gotten some benefit here over the last few years that we've been doing that and areas will continue to get better at. And I really -- I throw those kind of in, right, four categories here. First is just really trying to utilize labor, right. So, when we had a fulfillment center, we had a confined group of labor that was totally focused on just fulfilling online orders. Today, utilizing our entire store footprint, we are able to utilize that labor across the chain. Now, in some cases, that is in low volume period in stores at our minimum hours in which case we believe there is no incremental cost to fulfilling those orders. In fact, most of the year, we would put a lot of our web demand orders in that category. There are times in back-to-school and holiday and a few other peak periods, where we have to input labor, but I think labor leverage is really the first piece there. The second piece is, is really on the shipping side by shipping from our stores, we are closer to our consumers today, for the vast majority of what we ship, and that creates some shipping savings. And then the other piece that we've been working on over the last few years with some good success is split shipments, and that was something that we identified upfront was part of the challenge of going from a large fulfillment center to shipping from stores with a multi unit orders will be split across multiple stores, and we've been working harder and harder ways to bring that down, that split rate down. And the last thing I would say is, I do think over time there has been and will continue to be a product -- a product margin benefit to this. We are harvesting inventory from our entire chain, and as you can imagine, we are trying to harvest inventory for web demand from our lower volume stores, because inherently the higher volume stores have more traffic. So, I think there's a product margin gain here, obviously, these things are incredibly interwoven, right? The way that the web and the stores work together to serve the customer. So, it is challenging to break out the savings here, but we know we are moving in the right direction based on the metrics that we're using, and this is an area that's important to us, because as you know minimum wage across the country is going up, and so I think the teams are really getting creative to first and foremost serve the customer in the best format possible. And secondly, look to ways to maximize our expense structure. So, really encouraged by the results of the last three years, I think you're seeing that in the fourth quarter growth that Rick talked about, the annual earnings growth, that I talked about, really embedded in those results.
And then lastly, I'd just add to trade area, as Rick said, we're at the early innings of this thing for sure. We are doing more and more with it as we kind of get our hands around it, and I think this is an another area that could really help us over the long-term. Again, not significant impact planned in the 2019 guidance, but as we think out beyond 2019, this is an area where we can really look at trade area by trade area. How are we performing in this trade area. How many stores do we have in this trade area, and what is our opportunity, if we were to remove say these lowest performing store in a trade area to still reach that consumer and provide them value. And like I said -- we're in the early innings today, we've been doing this a little bit with some of the stores that we've closed to date, and we've seen a good impact of what it means to the surrounding stores. So, we just have to continue to work through this concept, but this will be really evaluating a group of stores together that operate as a trade area, that we can find some benefit and how we maximize profitability within each trade area we operate.
John Morris -- D.A. Davidson -- Analyst
Great. Thank you very much. Very insightful.
Richard M. Brooks -- Chief Executive Officer
Thanks, John.
Operator
Thank you. And our next question comes from the line of Jonathan Komp with Baird. Your line is now open.
Jonathan Komp -- Baird -- Analyst
Yes. Hi. Thank you. I just wanted to maybe ask a little more directly on the comps outlook, what you're embedding in terms of thinking to get to low-single digits for the year and just kind of the factors that are supporting your confidence, if you could talk a little more directly to some of the drivers and whether or not the drivers you see in that outlook are any different than the last 10 quarters of this strength that you've seen?
Christopher C. Work -- Chief Financial Officer
Well. I think I'll tell you first and foremost the biggest piece of confidence I have is this business has been going for 40 years and comp positively for like 34 of the 40 years. So, we have a strong history of comping in this business and being able to comp on comp. It's a fundamental pillar of how we think of running our business and compensating our people and all the things that tie with it. So, obviously domestically here we have a more mature business. So, we are focused on driving comp, but those comps aren't going to be as strong as our international comp where we have younger business with more new stores, growing websites that we think we can drive a higher comp point. So, that being said, all businesses at this point are planned to comp positively and the drivers of that are going to be continuing to do what we've done for decades now, launching new brands, it's not going to be the 100 brands plus that we launched this year. It'll be brands we've launched over the last few years that's providing a great store experience, great online experience through our sales teams and tying that all together through the things we just talked about in our last conversation of localized fulfillment and providing that great service to the customer quickly with speed that really tie it altogether. So, there's not one thing, Jon, that we point to, it's really what we believe is the model and clearly we're looking at this at a more detailed level, different regions and categories and things like that, but our focus is really to plan all those things up and it's just a matter of who gets a little more of the pie based on where they are at in the growth curve.
Jonathan Komp -- Baird -- Analyst
Okay. That's helpful. And then a little bit of a different question, but going back to margin, I think it's encouraging to see the product margin at such high levels yet the operating margin is still quite a bit below peak set a number of years ago, and I know international, which you touched on explains a portion of that, but I wanted to just ask when you look across the cost structure now that you've made significant number of investments, if there's any opportunities or hard buckets of expenses that could potentially be a little more aggressive on taking a look at?
Richard M. Brooks -- Chief Executive Officer
So, the question is are there any other investments that we want to take a look at?
Jonathan Komp -- Baird -- Analyst
Sorry. No. Let me phrase it differently, are there any other cost buckets that you could look to optimize or gain additional efficiencies just given that your total operating margins still quite a bit below peak, despite product margin being so high?
Christopher C. Work -- Chief Financial Officer
Sure. I think the short answer is there is lots of them. We continue to really push up and down the business, and I guess, again, I'll break this into kind of the two different businesses and our mature business here in North America, we've got a very defined cost structure with a lower growth point in regards to number of units. So, as I look at that business the real challenge is, what you're hearing most retailers talk about minimum wage increases and wage inflation and shipping costs, so those are going to be our biggest two challenges. So we have a lot of initiatives in place to try to minimize those impacts, localization and the way we handle online fulfillment is one of them, as is how we schedule, how we plan, where we put our best sales people, all of those things are initiatives that are out there for us right now. From a shipping perspective, we continue to work with our carriers and finding ways to optimize our shipping network where shipments is one way we do that, but there are lots of other initiatives in place to try to reduce those things. Beyond those two big items, obviously we continue to work with our landlords, we are working up and down the P&L of trying to find efficiencies in this mature business, because we understand that over a long period of time, five years this is a business that with retail is probably going to be in that low-single digit growth level. And we are focused on growing earnings at that level and that means we have to rethink the way we've done the business, we have to rethink our cost structure and our teams are very focused on that within this mature business.
Internationally, a little different ball game, because obviously as we've said it's not a profitable business at this point, but the growth point is higher, the product margin opportunity is higher, because we are operating at lower percent than the US here. We have a much lower penetration of private label internationally, so that's an opportunity. And from a cost perspective, we built out the infrastructure there. We have got the majority of our big expenses at this phase of the growth curve behind us, and we are really focused on keeping expenses at a very low growth point, while we grow sales and grow margins, so it's a different path there, and as we look long-term, this was a business six, seven years ago, we were talking about getting operating profit as a percent of sales in the low-teens. I think that's changed and I think that's changed across pretty much the entire retail footprint, but it is a business that we think consolidated we can push to the high-single digits. And that's where our focus is, is getting operating profit as a percent of sales to the high-single digits, and I think we execute on what I've laid out, which again is kind of thinking about the mature business on a low-single digit over a period of years and keeping expense growth below that and internationally growing much faster and managing expenses I think that's something we can achieve.
Richard M. Brooks -- Chief Executive Officer
And only thing I'd add, Jonathan, is that's exactly what we're doing the last couple of years is we're growing, I think we've hit bottom on the operating profit percentage, and we now are starting to see that number grow. So, I think what you just heard Chris described, you're seeing come through in the numbers, and as Chris said our goals continue to grow and profitability the business from an operating profit perspective. Now of course, if we have recession we'll go backwards and we'll see competitors go away across the globe and we expect that coming out of the recession we're going to emerge even stronger with a stronger share position in the marketplace, which will allow us to drive operating margin higher again in that case. So, we are very, very focused, as Chris has laid out here on these initiatives that drive our operating margin forward, particularly in an environment where we -- because of the transparency that consumers are having today's world on price and availability of product we think that's been one of the key things that drove it down, and now it's our chance -- investments we made to go get that margin back, and I think we've done that over the last couple of years and our goal is to continue to do that.
Jonathan Komp -- Baird -- Analyst
That's very helpful to hear. Thank you.
Operator
Thank you. And that concludes our question-and-answer session. So with that, I'll turn the call back over to CEO, Mr. Rick Brooks, for closing remarks.
Richard M. Brooks -- Chief Executive Officer
All right. Thank you very much, Andrew, appreciate that. And I just want to here at the end of our fiscal year. I just want to surely take this opportunity to thank all of our teams and our sales teams, our whole office teams across the globe that have worked so hard on what I think was just a terrific year of results for Zumiez. And I also thank our investors for hanging in there with us through all these challenging times we've been through the last couple of years, and I can tell you we're very excited about looking forward over the next few years. So, we hope we can continue this result, continue driving our business forward. We intend to dominate our niche of retail, we think we're in a leading position to do that, and we're on, that is our mission as we look at over the next five and 10 years. So, thank you everyone for your support. We greatly appreciate it, and we look forward to talking to you at the end of first quarter. Thank you.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a wonderful day.
Duration: 57 minutes
Call participants:
Richard M. Brooks -- Chief Executive Officer
Christopher C. Work -- Chief Financial Officer
Sharon Zackfia -- William Blair -- Analyst
Jeff Van Sinderen -- B. Riley -- Analyst
Mitch Kummetz -- Pivotal Research -- Analyst
John Morris -- D.A. Davidson -- Analyst
Jonathan Komp -- Baird -- Analyst
More ZUMZ analysis
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