Earnings Call Transcript - ZUMZ Q4 2025

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Zumiez Inc. Fourth Quarter Fiscal 2025 Earnings Conference Call. Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zumiez Inc.'s business outlook and contains forward-looking statements. These forward-looking statements and all other statements that may be made on this call 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 in Zumiez's filings with the SEC. At this time, I would like to turn the call over to Rick Brooks, Chief Executive Officer. You may begin.

Richard Brooks, CEO

Hello, and thank you, everyone, for joining us on today's call. With me today is Chris Work, our Chief Financial Officer. I'll begin with remarks about our fourth quarter performance and the successful holiday season we just completed before reflecting on our strong full year 2025 results and discussing our strategic priorities. Chris will then take you through the financials and our outlook for fiscal 2026. After that, we'll open the call to your questions. We're pleased with our fourth quarter results, which capped off a second consecutive year of important progress for Zumiez. Q4 results were highlighted by robust full price selling in North America during the important holiday season, which fueled mid-single-digit comparable sales growth in the region and meaningful gross margin expansion. In addition, the work we've done focused on assortment and full price selling in our European business drove 660 basis points of year-over-year product margin improvement. This, coupled with disciplined expense management, resulted in 380 basis points of operating margin growth despite sales being down high single digits year-over-year in local currency for the quarter. Our performance in both regions reflects the continued effectiveness of our full price selling and cost-saving strategies even as we faced regional headwinds. From a category perspective, men's led our positive comparable sales growth during the holiday period, followed by women's, accessories, and hardgoods. This broad-based strength across multiple categories validates our merchandising approach and the investments we've made in product newness and private label expansion throughout the year. Reflecting on fiscal 2025, we took important steps towards returning to historical levels of sales and earnings. Our merchandising assortments and customer experience initiatives generated positive trends every quarter, from low single digits to high single digits and a 4.3% comparable sales gain for the year on top of a 4% increase in 2024. Our North American businesses demonstrated consistent momentum, registering 8 consecutive quarters of comparable sales growth. Our strategic shift in Europe, implemented just 1 year ago, gained momentum as we moved through the year. This consists of bringing newness, strong inventory management, full price selling and expense management that we believe will drive the business to better results in the near term. The combined impact of our initiatives helped to improve full year earnings per share to $0.78 from a loss of $0.09 last year. These results validate the strategic initiatives we've been executing and position us well for continued success in 2026. As we look ahead, we remain focused on the same 3 strategic priorities that have driven our success throughout 2025. First, driving revenue growth through consumer-focused strategic initiatives. Our commitment to refreshing our product mix with innovative, distinctive offerings has proven to be a cornerstone of our success. In 2025, we launched over 150 new and emerging brands across our banners, and this newness continues to generate exceptional customer response. Private label penetration reached its highest level in company history in 2025 at approximately 30% of sales, up from 12% 5 years ago. This sustained expansion demonstrates our organization's ability to identify emerging trends and create compelling products that resonate with our customers while simultaneously enhancing our margin profile. Our investments in delivering exceptional customer experiences across both physical and digital touch points continue to yield strong results. Enhanced staff development programs and technological capabilities we've implemented allow us to engage with customers where they want, when they want and in more personalized ways, strengthening the relationships we have that have long served as another cornerstone of our success. Second, sustaining our rigorous commitment to profitability optimization across our geographic footprint. Within North America, our premium pricing strategies continue to support both margin expansion and market share growth, while the operational improvements we've executed throughout 2025 are keeping sales growth well ahead of our expense growth. Our continued focus in this area has established a more efficient and profitable framework that positions the business for a strong flow-through on incremental sales to fuel operating margin gains. Regarding our international operations, while Europe continues to face challenging market conditions, our disciplined approach to new assortments, full price selling, and expense management is starting to show results. The significant product margin improvements we achieved in the fourth quarter and full year demonstrate the effectiveness of our strategy, and we remain committed to our long-term vision for the countries in which we operate. We continue to see tremendous value in our ability to identify trends locally in each market before they expand internationally. Third, capitalize on our solid financial foundation to manage volatility by funding strategic expansion. Our financial position remains exceptionally strong, providing us with the flexibility to continue investing in our strategic objectives while delivering value to shareholders. This financial stability enables us to navigate ongoing uncertainties in the macro environment by simultaneously positioning the company for long-term growth and continued market share gains. Despite an operating environment characterized by economic volatility and evolving global dynamics, I'm increasingly confident in our ability to generate value for all of our stakeholders. The fundamental strategies that have powered our performance throughout 2025 continue to demonstrate their relevance, and our team's proven adaptability and execution capabilities fuel my optimism about our trajectory into fiscal 2026. Our direction remains clear and consistent: maintain our dedication to delivering distinctive, fashion-forward merchandise through the customer connection strategies that have driven our growth while preserving the operational discipline that has strengthened our financial performance. We've demonstrated our resilience and ability to execute through various market cycles, and I'm confident we're strategically positioned to continue building on this momentum. Before turning things over to Chris, I want to express my appreciation to our entire organization for their continued commitment and exceptional execution throughout 2025. Their dedication to our values and our customers remains the foundation for all of our achievements and positions us well for continued success in the year ahead. With that, let me hand things over to Chris for our financial review.

Christopher Work, CFO

Thanks, Rick, and good afternoon, everyone. I'm going to start with a review of our fourth quarter and full year 2025 results. I'll then provide an update on our first quarter to date sales trends before providing some perspective on the full year. Net sales for the fourth quarter of 2025 increased 4.4% to $291.3 million compared with $279.2 million in the fourth quarter of 2024. Comparable sales were up 2.2% for the quarter. As Rick mentioned, the primary driver was our North America business, which showed outsized strength even as macroeconomic uncertainties spurred by global trade policy continue. For the fourth quarter, North America net sales were $224.4 million, an increase of 4.8% from 2024. Other international net sales, which consists of Europe and Australia, were $66.9 million, up 3% from last year. Excluding the impact of foreign currency translation, North America net sales increased 4.6% and other international net sales decreased 7.1% year-over-year. Comparable sales for North America were up 5.5%, marking the eighth consecutive quarter of comparable sales growth in this region. Other international comparable sales declined 7.5% in the fourth quarter. From a category perspective, men's was our largest positive comping category, followed by women's, accessories, and hardgoods. Footwear was our only negative comping category. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction. Fourth quarter gross profit was $111.4 million compared to $101 million in the fourth quarter of last year. Gross margin was 38.2% of sales for the quarter compared with 36.2% in the fourth quarter of 2024. The 200 basis point increase in gross margin was primarily driven by 180 basis points of improvement in product margin and 50 basis points of leverage in store occupancy costs on higher sales and the closure of underperforming stores. These benefits were partially offset by 20 basis points related to increased incentive costs on improved results. SG&A expense in the fourth quarter of 2025 was $86.4 million or 29.6% of net sales compared to $80.9 million or 29% of net sales in 2024. The 60 basis point improvement in SG&A expenses as a percentage of net sales was driven by 100 basis points of increased incentive costs on improved results and 20 basis points related to corporate wage costs. These cost increases were partially offset by 50 basis points of leverage in store wages related to increased sales and hours management and 20 basis points of leverage in other store operating costs. Operating income in the fourth quarter was $25 million or 8.6% of net sales compared to prior year operating income of $20.1 million or 7.2% of net sales. Net income for the fourth quarter was $19.6 million or $1.16 per share. In the year ago period, we reported net income of $14.8 million or $0.78 per share. Our effective tax rate for the current quarter was 26.3% versus 26.1% a year ago. Looking at our full year results, net sales for fiscal 2025 were $929.1 million, an increase of 4.5% from $889.2 million for 2024. Comparable sales for the full year were up 4.3%. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction. From a category perspective for the full year, women's was our largest positive comping category, followed by men's, hardgoods, and accessories. Footwear was our only negative comping category. From a regional perspective, North America net sales were $757 million, an increase of 5.1% from 2024. Other international net sales were $172 million, up 1.7% from last year. Excluding the impact of foreign currency translation, North America net sales increased 5.2% and other international net sales decreased 4.2% compared to 2024. Comparable sales for North America were up 6.7%, and comparable sales for international were down 5.4% for the full year. 2025 gross margin was 35.8% of sales compared to 34.1% in 2024. The 170 basis point increase was primarily driven by 90 basis points of improvement in product margin and 70 basis points of leverage in store occupancy costs on higher sales and the closure of underperforming stores. SG&A expense was $315.5 million or 34% of net sales for fiscal 2025 compared with $301.1 million or 33.9% of net sales in 2024. The 10 basis point increase as a percentage of net sales was driven by 50 basis points of increased incentive costs on improved results and 40 basis points related to wage-and-hour litigation settlements in California. These benefits were partially offset by 60 basis points of leverage in non-wage store operating costs and 30 basis points of leverage in store wages on increased sales and hours management. Fiscal 2025 operating income was $17 million or 1.8% of net sales compared to operating income of $2 million or 0.2% of net sales in the prior year. Net income in fiscal 2025 was $13.4 million or $0.78 per share compared to a net loss of $1.7 million or $0.09 per share in the prior year. Fiscal 2025 was negatively impacted by approximately $0.15 per diluted share related to a wage-and-hour litigation settlement in California. Turning to the balance sheet. The business ended the year in a strong financial position. We had cash and current marketable securities of $160.6 million as of January 31, 2026, up from $147.6 million as of February 1, 2025. The increase in cash and current marketable securities over the last year was primarily driven by cash flow from operations of $53.5 million, a $2.9 million benefit from foreign currency fluctuation and our release of $2.7 million in restricted cash, partially offset by common stock repurchases of $38.3 million and capital expenditures of $11.1 million. As of January 31, 2026, we have no debt on the balance sheet and continue to maintain our full unused credit facility. The company repurchased 2.7 million shares during fiscal 2025 at an average cost of $14.18 per share and a total cost of $38.3 million. On March 11, 2026, the Board of Directors approved the repurchase of up to an aggregate of $40 million of common stock. The repurchase program is expected to continue through January 29, 2028, unless the time period is extended or shortened by the Board of Directors. This repurchase program supersedes the prior authorized approval approved by the Board of Directors on June 4, 2025, that was set to expire on June 30, 2026. We ended the year with $147 million in inventory compared to $146.6 million last year, a growth of 0.2% year-over-year. On a constant currency basis, our inventory levels were down 3.8% from last year. We feel good about our current inventory position. Now to our first quarter to date results. Total sales for the 4-week fiscal period ended February 28, 2026, increased 9.8% compared to the 4-week fiscal period ended March 1, 2025. Comparable sales over the same period increased 7.5%. From a regional perspective, North America net sales for the 4-week period ended February 28, 2026, increased 5.6% over the 4-week period ended March 1, 2025, while our other international business increased 27.6%. Excluding the impact of foreign currency translation, North America net sales increased 5.3% and other international net sales increased 12% compared with 2025. Comparable sales for our North America business increased 6% for the 4-week period ended February 28, 2026, compared to the same week in the prior year, while comparable sales in our other international business increased 13.2%. From a category perspective, quarter-to-date, hardgoods is our largest positive comping category, followed by men's, women's, and accessories. Footwear was our only negative comping category. The consolidated increase in comparable sales was driven by an increase in dollars per transaction, partially offset by a decrease in transactions. Dollars per transaction were up for the quarter, driven by an increase in average unit retail and an increase in units per transaction. With respect to our outlook for the first quarter of fiscal 2026, I want to remind everyone that formulating our guidance involves some inherent uncertainty and complexity in estimating sales, product margin, and earnings growth, given the variety of internal and external factors that impact our performance. Our comparable sales results in early fiscal 2026 have maintained positive momentum, and we are cautiously optimistic that we'll continue to deliver top and bottom line improvements in the first quarter, assuming no significant economic impact on the business from the current global conflicts or tariff changes. For the first quarter, we are anticipating total sales to be between $189 million and $193 million for the 13 weeks ending May 2, 2026, representing growth of 3% to 5%. Comparable sales for the same time period are expected to be between 2% and 4%. Consolidated operating loss for the first quarter is expected to be between negative $15.6 million and negative $17.8 million compared to a loss of $19.9 million in the prior year. Included in this reduction of our operating loss is continued product margin expansion in North America and Europe as well as a benefit related to a $2.9 million one-time wage-and-hour litigation settlement incurred in the first quarter of 2025. This is an improvement of between 140 to 270 basis points as a percentage of sales. We expect this improvement to be driven by 130 to 200 basis points of gross margin expansion and 10 to 70 basis points of SG&A leverage. Before providing our first quarter EPS guidance, I'd like to point out that our loss per share comparison to the prior year is negatively impacted by favorable foreign exchange valuation and interest income items in the first quarter of 2025 that did not repeat in the first quarter of 2026. Also, due to share buybacks in fiscal 2025, we have reduced our basic shares outstanding by approximately 10%, negatively impacting our loss per share guidance by an additional $0.07 per share. With that, we anticipate that our loss per share will be between negative $0.77 and negative $0.87 compared to a loss of negative $0.79 in the prior year. As we consider the outlook for the full fiscal year 2026, with 7 consecutive quarters of positive comparable sales behind us and momentum into the new year, we are confident in our strategy and execution. However, caution is warranted, given the ongoing volatility in the macro environment. We will refrain from giving specific annual guidance, but we will provide some context around how we see the business trending throughout the year. Top line strength continues in North America, and we have lapped a promotional period in our European business last year that, along with a difficult snow season, contributed to the fourth quarter sales decline in the region. Both North America and Europe are trending positive in the first quarter to date. With relative stability in the macro environment, we believe we can grow total sales in the low single digits for the year, inclusive of the negative impact of closed stores worth approximately $12 million in sales. From a product margin perspective, 2025 was at a high point, excluding the stimulus-driven 2021 results. We believe that we will continue to grow product margin year-over-year in 2026 through steady improvements in North America and continued pricing discipline in our international entities. We believe that our private label business will continue to grow, helping drive the overall results, including potential tariff benefits, should the current situation hold throughout the year. In addition to product margin growth, we believe further leverage exists in our occupancy costs and other components that will drive gross margin expansion. With sales growth discussed, we would anticipate leverage of our SG&A costs, further contributing to operating margin expansion. With the previously mentioned assumptions, we anticipate operating margin growth in the 50 to 100 basis point range in fiscal 2026. While effective tax rates will fluctuate by quarter, we anticipate that our full year effective tax rate will be roughly 35% to 40% in fiscal '26 compared to an effective tax rate of 44.4% in 2025. We are planning to open 5 new stores in 2026, all within the U.S. This compares to 6 total stores opened in 2025 and 7 stores in 2024. We plan to close approximately 25 stores during fiscal 2026, including 20 in North America and 5 internationally, and we closed 17 stores during fiscal 2025. We expect our capital expenditures for 2026 to be between $14 million and $16 million compared to $11.1 million in fiscal 2025 and $15 million in 2024. We expect that depreciation and amortization, excluding noncash lease expense, will be approximately $18.9 million, down from $21.3 million in 2025. And we are currently projecting our diluted share count for the full year to be approximately 17.1 million shares. This share count does not include the impact of any future share repurchases, including those under the repurchase agreement announced today. And with that, operator, we'd like to open the call up for questions.

Operator, Operator

Our first question comes from Mitch Kummetz with Seaport.

Mitchel Kummetz, Analyst

Let me begin with Europe. I want to understand what's happening there. In the fourth quarter, other international reported a negative 7.5% comparable sales. I know you focused more on full price selling during that quarter, and now, Chris, you mentioned that you're seeing a 13.2% increase quarter-to-date for other international. Did something change regarding the full price selling strategy? Or was it that you weren't overcoming that challenge in the quarter-to-date? I’d like to understand the reasons behind the significant change in comparable performance from the fourth quarter to the first quarter to date in other international, which I assume is driven by Europe.

Christopher Work, CFO

Yes, thank you, Mitch. You’re correct in your assumption that Europe is leading this change. As you know, we began altering our strategy in late 2024, with the aim of rethinking our approach in Europe. Although we were experiencing rapid growth, we weren't reaching our profitability and cash flow goals. Therefore, we decided to slow down growth and concentrate on strengthening our core business while enhancing profitability and cash flow. It can take time for changes to take effect, but our team developed a plan that involved some personnel adjustments, which took a while to gain traction. As we progressed through 2025, our business saw a decline from approximately $135 million to just under EUR 135 million. During 2025, we experienced product margin expansion of 250 basis points, with Q4 achieving a significant increase of 660 basis points. This was a tremendous victory as we redefined our product portfolio and improved our inventory purchasing. Despite a notable decrease in Q4 sales, we managed to increase operating profit by $1.8 million through effective full price selling and expense management, even amid a generally weak winter. We placed a strong emphasis on inventory management and relevant product offerings, which positioned us significantly better as we entered 2026 than a year prior. As you noted, we currently have nearly 90 stores across 9 countries, and 2026 has started off well. The 13.2% international comparable sales growth is entirely attributed to Europe. While we are not unaffected by broader economic factors, our focus remains sharply on operating profit and cash flow. We aim to maximize sales from our existing locations and online, streamline our operations to focus on core activities that enhance product offerings and customer service, improve product margins, and manage expenses effectively while keeping a close watch on inventory levels. All these efforts have resulted in four consecutive months of improved outcomes, but there is still much work ahead. We are optimistic about our progress over the past four months and are laying a solid groundwork for further advancements in 2026. Ultimately, we believe international growth is beneficial for us and is the best way to serve our global customers through our brands. Additionally, being present in more locations helps us identify local trends that can grow globally. We are encouraged by the developments over the last four months, especially in February, and we aim to maintain that momentum moving into 2026.

Mitchel Kummetz, Analyst

And then as far as the comp guide for the quarter, I think you said a 2% to 4% comp. Quarter-to-date, you're running plus 7.5%. I know February is a fairly small month. But why are you anticipating worse comp performance over the balance of the quarter? And then, maybe as you address that question, can you also maybe speak to what you're seeing in terms of like tax refunds so far? And then, how are you thinking about higher gas prices potentially impacting your consumers?

Christopher Work, CFO

Yes. All good questions. Let me start with kind of the guide, but I think these are going to sort of blend together. Obviously, we had a great February really across the business. International, we just spoke about. But North America was very strong, too, up 6% comp across the 4 weeks of February. I'll tell you, as we started to see the global conflict unfold, we did see some softness in week 5 and have kind of guided the business into what we saw as a slowdown from where we were in February. And so, while still positive, we just saw some softness in the business, and that's how we plan the quarter to come out. Now whether that's tied to rising fuel prices and a little bit of uncertainty in the macro environment, I think that's to be determined, and we just need more time to figure it out. But in relation to putting the guide together and how we saw our comp guide, this is really about kind of looking at what's our current run rate sort of post-February and drawing that out across the rest of the quarter.

Operator, Operator

Our next question comes from the line of Richard Magnusen with B. Riley.

Richard Magnusen, Analyst

So first off, it looks like your private label penetration was strong in Q4 at around 30%. But during the holiday season, did you notice any change in certain categories regarding the performance of private label versus the branded products? Or was it pretty much the same trends in different categories that you saw throughout the year?

Richard Brooks, CEO

I'll start, Richard, and then Chris can add in. To give you some context, I don't think we saw any major changes. There are certain categories that are really dominated by our private label or own brands, which makes it hard to compare our branded portfolio with our private label brands. Each of them targets a different segment of our business, so I wouldn't highlight any significant trend direction changes from a private label perspective that I can think of in terms of category performance for the brands that did well. We also had some new brands perform really well on the branded side, making it a combination of both. The new brands tend to focus more on T-shirts, fleece, and hats in the more screenable portion of the business, while private label is primarily strong in the pants categories. They're somewhat separated in that sense, but both have done well and contributed positively in Q4.

Richard Magnusen, Analyst

Okay. My last question is that Easter is just over 3 weeks away. Can you share your expectations regarding the timing of your spring assortment, any noticeable consumer preferences, the impact of recent weather in different parts of the U.S., and the promotional activities planned around Easter weekend?

Christopher Work, CFO

Sure. I'll address that as it relates to our planning, and then let Rick speak. Easter is approaching, so we've started to present our products in a way that leverages that occasion, planning for a higher increase in sales during the middle part of the quarter rather than later. Richard, from a promotional standpoint, that's not really our focus. We aim to maintain full price and full margin, which is evident in our product margin results for 2025 and over the past few years as we've successfully grown product margin across both private label and branded items by collaborating closely with our partners. I don’t have anything specific to highlight there. We do have various spring initiatives that will connect with the gift-giving during Easter and align with our seasonal offerings, but I won’t get into those details as they are part of our product strategy. We're continually working to introduce new items, which our customers appreciate, particularly in private label. This also ties into your previous question about our branded portfolio. Our top 20 brands are gaining traction this year as a percentage of overall business, which we consider positive. We've experienced cycles where our largest brands fluctuate; sometimes we expand with new brands and at other times, we consolidate, hopefully leading to strong results. You can observe this across all our categories, whether when discussing Q4 or February, we've seen growth except in footwear, which remains a challenge for us. However, we're enthusiastic about maintaining a strong overall performance in our business.

Operator, Operator

Our next question comes from Marcus Belanger with William Blair.

Marcus Belanger, Analyst

I'm on for Dylan Carden. I just wanted to ask a follow-up to an earlier question about international. Obviously, you've seen a lot of volatility in that area. Can you tell me what you guys are doing to stabilize the area and have greater visibility into future growth? And then I have a follow-up.

Christopher Work, CFO

Yes. I’ll expand on my earlier comment and let Rick add anything if needed. Our business always begins with product. As we considered reimagining the business for the end of 2024, part of the focus was on slowing growth to ensure we maintain a sharp focus. It involved analyzing products to understand trends, identifying our customers, and delivering what they want in an appealing way that allows us to sell at full price. This required rethinking our offerings, considering who we carry and how we present them to customers, and pushing this approach into the business differently than before. As you can imagine, purchasing in advance means it takes time to implement changes. We recognized that by late 2024, around back-to-school and holiday season, we would begin to see this strategy materialize. We were encouraged by some of the initial reimagined areas and their implications for Q4, with some items even extending into 2026. Ultimately, it’s about the product. Execution is also critical, especially regarding the store environment and the staff who bring the product to life. We continue to invest in our teams, like we do in North America, focusing on building a human connection with our customers and engaging them effectively. We believe that when we have the right product and can connect with customers meaningfully, it creates a better experience that encourages repeat visits.

Richard Brooks, CEO

I'd like to mention that we have thoroughly examined every aspect of our business in Europe. As Chris mentioned earlier, we made some leadership changes in our European operations and are now excelling in several crucial areas. We are meticulously reviewing all elements of our strategy. I feel optimistic about our Q4 performance, especially considering it occurred during one of the toughest snow years ever in Europe, where we hold a strong position in the snow retail sector. Even with these challenges, we managed to significantly improve our bottom line. We're encouraged by our progress, but as Chris noted, we still have much work ahead. We are dedicated to enhancing our product offerings, introducing new items, providing an excellent customer experience, and effectively marketing our products across all channels.

Marcus Belanger, Analyst

For stores, how many more years do you anticipate closing stores? Regarding the new stores you plan to open this year, which seems to be five, how have those new stores been performing? Are they reaching a higher maturity level? Do you expect them to achieve a better sales per store maturity compared to your other stores? Any comments on the basic productivity for the first year or two for your new stores?

Christopher Work, CFO

Certainly. I'll briefly discuss new store openings and then we can address closures. Since the pandemic, our pace of store openings has slowed compared to historical levels, which we anticipated given that North America is largely built out and our international expansion is where we've sought growth in recent years. As mentioned today, we've intentionally slowed our international expansion to prioritize profitability and cash flow, leading to fewer store openings. We're looking at opening around 5 stores a year in North America, and recent openings have been successful. We have been selective about our locations, aiming to fill markets we wanted to enter for some time. There are still valuable opportunities in the country, and we're focused on finding the right fit in locations that make sense economically for us to invest in. I’m pleased with how our real estate and store operations teams have managed our openings, seeing more successes than challenges with each group. Regarding store closures, we've started a more significant process this year and will continue into next year after closing about 17 stores last year. We expect to exceed that number this year, forecasting around 20 closures in North America and 5 internationally. Our closure process is thorough, assessing each market and trade area for underperforming stores, consolidation opportunities, and considering various factors such as sales, profitability, and the store’s overall impact on its area. We evaluate everything from sales data to the condition of the shopping centers and the investment made by landlords. We aim to maximize performance, and if a store’s performance peaked over a decade ago, it may indicate a decline in that center’s viability. We strive to manage store economics before making closure decisions, focusing on sales growth. This is reflected in our forecast for 2026, where we expect sales growth in the low single digits despite closing some stores which have about a $12 million impact. In summary, we are looking to consolidate our store presence intentionally, without holding onto more stores than necessary in a given area, as that ties up capital and inventory. Internationally, we anticipate a few more closures than usual in 2026 as we refine our portfolio. We evaluate our stores to determine which are performing well, which have potential for improvement, and which need to close for the overall betterment of the business.

Richard Brooks, CEO

I would like to emphasize that, looking ahead to the next decade or so, we are witnessing the conclusion of a trend in certain low-performing mall locations in the U.S., particularly those categorized as C- and D-volume. Historically, these locations have been profitable for us, but they have now reached a stage where they are no longer viable. However, an important takeaway is that, as demonstrated in our results for 2024 and 2025, when we closed some units, total sales in North America still increased. This reflects a significant shift in customer behavior, as shoppers are gravitating towards more desirable retail experiences in stronger malls. This trend indicates that while the weaker malls are facing closures, our presence in the more successful malls remains robust, making us one of the last retailers to exit these underperforming centers. Ultimately, it’s not solely about declining sales but rather a realignment of customer preferences towards better retail environments.

Operator, Operator

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Rick for closing remarks.

Richard Brooks, CEO

All right. Thank you again for all of your questions today, and we always appreciate your great interest in what we're doing and the progress we're making towards building back towards our historical profitability levels. And as I said earlier, I really want to thank everyone on our team and our partners and our brand partners and the support as we really drive better results. So much appreciated from everybody, and we'll talk to you again in June. Thank you.

Operator, Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.