The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this document. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in "Item 1A Risk Factors." See the cautionary note regarding forward-looking statements set forth at the beginning of Part I of the Annual Report on Form 10-K.

Fiscal 2012-A Review of This Past Year

In fiscal 2012, Zumiez achieved record sales and earnings levels and continued to build on the momentum we had seen in fiscal 2011. During the year, we continued to make strategic investments that we believe will reap long-term benefits focused on enhancing the customer experience across multiple sales channels, domestic and international growth and on our people and infrastructure aimed at improving decision making and product speed to market. In July 2012, we completed the acquisition of Blue Tomato. Blue Tomato is a multi-channel retailer

for board sports and related apparel and footwear in the European marketplace. The Blue Tomato acquisition represents a presence in the European action sports market with an established brand identity and operational philosophies that are strategically aligned with Zumiez.

The following table shows net sales, operating profit and margin and diluted earnings per share growth for fiscal 2012 compared to fiscal 2011. The fiscal 2012 results include $7.3 million in costs associated with the acquisition of Blue Tomato, including one-time acquisition costs, amortization of intangible assets and the costs associated with the future incentive payments related to the transaction as well as $2.1 million in charges for the relocation of our home office and ecommerce fulfillment center:

                                                                 Fiscal Year Ended
                                        February 2, 2013 (1)           January 28, 2012            % Change
Net sales (in thousands)               $              669,393          $         555,874                  20 %
Operating profit (in thousands)        $               68,542          $          60,232                  14 %
Operating margin                                         10.2 %                     10.8 %
Diluted earnings per share             $                 1.35          $            1.20                  13 %

(1) The fiscal year ended February 2, 2013 consisted of 53 weeks versus 52 weeks in the fiscal year ended January 28, 2012.

The increase in net sales reflected a comparable store sales increase of 5.0% for fiscal 2012 as well as the net addition of 56 stores (61 new or acquired stores offset by five store closures), which includes the acquisition of Blue Tomato during the second quarter of fiscal 2012. The increase in comparable stores sales was primarily driven by an increase in dollars per transaction partially offset by a decrease in comparable store transactions. Dollars per transaction increased primarily due to an increase in average unit retail, partially offset by a decline in units per transaction. These sales results were achieved with record product margins, demonstrating the strength of our distinctive product offering and the unique customer experience our store associates provide. As a result of our continued focus on managing our cost structure, these sales results translated into strong operating profit and diluted earnings per share growth despite the impact of charges related to the acquisition costs associated with Blue Tomato and relocation of our home office and ecommerce fulfillment center.

While the results of fiscal 2012 were positive, the back half of the year trended downward, particularly in the fourth quarter when same store sales decreased 1.0%. Contributing to these results were category challenges as we faced headwinds, such as footwear and snow hardgoods and outerwear.

Fiscal 2013-A Look At the Upcoming Year

As we enter fiscal 2013, we continue to face some of the challenges we encountered during the second half of fiscal 2012. In addition, we believe that consumers continue to face challenging economic conditions and uncertainty both domestically and globally that cause concern in the retail environment and lead us to be cautious in our outlook for the coming year. However, regardless of the macro economic landscape, we believe that we are well positioned to perform well relative to other retailers by staying true to what makes us unique while continuing to make return based investments.

Long-term we aim to grow sales annually and grow operating profit at a faster rate than sales by focusing on our growth initiatives while managing our cost structure. Our primary growth vehicles are:

1. Initiatives that drive comparable store sales gains;

2. Opening high return stores;

3. Ecommerce penetration; and

4. International growth

In fiscal 2013, we expect total sales to increase driven by an increase in comparable store sales, the opening of approximately 60 new stores, including approximately 15 stores through international expansion in Canada and Europe, increased sales from our ecommerce channel and a full year of sales attributed to the Blue Tomato acquisition. If we achieve our sales projections, we expect earnings will increase. We will make further investments in people and infrastructure in fiscal 2013, building on the progress we have made through fiscal 2012, primarily focused on the development of our omni-channel sales strategies and our international growth. We anticipate inventory levels per square foot to grow slightly. We expect our cash, short-term investments and working capital to increase, and do not anticipate any new borrowings during the year.

General

Net sales constitute gross sales net of actual and estimated returns, deductions for promotions and shipping revenue. Net sales include our in-store sales and our ecommerce sales. We record the sale of gift cards as a current liability and recognize revenue when a customer redeems a gift card. Additionally, the portion of gift cards that will not be redeemed ("gift card breakage") is recognized in net sales after 24 months, at which time the likelihood of redemption is considered remote based on our historical redemption data.

We report "comparable store sales" based on net sales beginning on the first anniversary of the first day of operation of a new store or ecommerce business. We operate a sales strategy that integrates our stores with our ecommerce platform. There is significant interaction between our in-store sales and our ecommerce sales channels and we believe that they are utilized in tandem to serve our customers. Therefore, our comparable store sales also include our ecommerce sales. Changes in our comparable store sales between two periods are based on net sales of "in-store" or ecommerce businesses which were in operation during both of the two periods being compared and, if a in-store or ecommerce business is included in the calculation of comparable store sales for only a portion of one of the two periods being compared, then that in-store or ecommerce business is included in the calculation for only the comparable portion of the other period. Any change in square footage of an existing comparable store, including remodels and relocations, does not eliminate that store from inclusion in the calculation of comparable store sales. Any store or ecommerce business that we acquire will be included in the calculation of comparable store sales after the first anniversary of the acquisition date. As such, Blue Tomato results will not be included in the calculation of comparable store sales until July 2013. There may be variations in the way in which some of our competitors and other apparel retailers calculate comparable or same store sales. As a result, data herein regarding our comparable store sales may not be comparable to similar data made available by our competitors or other retailers.

Cost of goods sold consists of branded merchandise costs and our private label merchandise costs including design, sourcing, importing and inbound freight costs. Our cost of goods sold also includes shrinkage, buying, occupancy, ecommerce fulfillment, distribution and warehousing costs (including associated depreciation) and freight costs for store merchandise transfers. This may not be comparable to the way in which our competitors or other retailers compute their cost of goods sold. Cash consideration received from vendors, is reported as a reduction of cost of goods sold if the inventory has sold, a reduction of the carrying value of the inventory if the inventory is still on hand, or a reduction of selling, general and administrative expense if the amounts are reimbursements of specific, incremental and identifiable costs of selling the vendors' products.

With respect to the freight component of our ecommerce sales, amounts billed to our customers are included in net sales and the related freight cost is charged to cost of goods sold.

Selling, general and administrative expenses consist primarily of store personnel wages and benefits, administrative staff and infrastructure expenses, freight costs for merchandise shipments from the distribution centers to the stores, store supplies, depreciation on fixed assets at our home office and stores, facility expenses and training, advertising and marketing costs. Credit card fees, insurance, public company expenses, legal expenses, amortization of intangibles and other miscellaneous operating costs are also included in selling, general and administrative expenses. This may not be comparable to the way in which our competitors or other retailers compute their selling, general and administrative expenses.

Key Performance Indicators

Our management evaluates the following items, which we consider key performance indicators, in assessing our performance:

Comparable store sales. As previously described in detail under the caption "General," comparable store sales provide a measure of sales growth for stores and ecommerce businesses open at least one year over the comparable prior year period.

We consider comparable store sales to be an important indicator of our current performance. Comparable store sales results are important to achieve leveraging of our costs, including store payroll and store occupancy. Comparable store sales also have a direct impact on our total net sales, operating profit, cash and working capital.

Gross profit. Gross profit measures whether we are optimizing the price and inventory levels of our merchandise. Gross profit is the difference between net sales and cost of goods sold. Any inability to obtain acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations.

Operating profit. We view operating profit as a key indicator of our success. The key drivers of operating profit are comparable store sales, gross profit, our ability to control selling, general and administrative expenses and our level of capital expenditures affecting depreciation expense.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 2, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements found in Part IV Item 15 of this Form 10-K. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

                                   Judgments and         Effect If Actual Results Differ
        Description                Uncertainties                From Assumptions
Valuation of Merchandise
Inventories

We value our inventory at     Our write-down reserve     We have not made any material
the lower of cost or fair     contains uncertainties     changes in the accounting
market value through the      because the calculation    methodology used to calculate
establishment of write-down   requires management to     our write-down and shrinkage
and inventory loss            make assumptions based     reserves in the past three
reserves.                     on the current rate of     fiscal years. We do not believe
                              sales, the age and         there is a reasonable
Our write-down reserve        profitability of           likelihood that there will be a
represents the excess of      inventory and other        material change in the future
the carrying value over the   factors.                   estimates or assumptions we use
amount we expect to realize                              to calculate our inventory
from the ultimate sales or    Our shrinkage reserve      reserves. However, if actual
other disposal of the         contains uncertainties     results are not consistent with
inventory. Write-downs        because the calculation    our estimates and assumptions,
establish a new cost basis    requires management to     we may be exposed to losses or
for our inventory.            make assumptions and to    gains that could be material.
Subsequent changes in facts   apply judgment regarding
or circumstances do not       a number of factors,       A 10% decrease in ultimate
result in the restoration     including historical       sales price at February 2, 2013
of previously recorded        percentages that can be    would have decreased net income
write-downs or an increase    affected by changes in     by $0.1 million in fiscal 2012.
in that newly established     merchandise mix and
cost basis.                   changes in actual          A 10% increase in actual
                              shrinkage trends.          physical inventory shrinkage
Our inventory loss reserve                               reserved at February 2, 2013
represents anticipated                                   would have decreased net income
physical inventory losses                                by $0.2 million in fiscal 2012.
("shrinkage reserve") that
have occurred since the
last physical inventory
dates.

Fixed Assets

We review the carrying        Our impairment loss        We do not believe there is a
value of our fixed assets     calculations contain       reasonable likelihood that
for impairment whenever       uncertainties because      there will be a material change
events or changes in          they require management    in the estimates or assumptions
circumstances indicate that   to make assumptions and    we use to calculate fixed asset
the carrying value of such    to apply judgment to       impairment losses. However, if
asset may not be              estimate future cash       actual results are not
recoverable.                  flows and asset fair       consistent with our estimates
                              values, including          and assumptions, our operating
Recoverability of assets to   forecasting future         results could be adversely
be held and used is           sales, gross profit and    affected.
determined by a comparison    operating expenses.
of the carrying amount of                                Although management believes
an asset to future            Our fixed assets           that the current useful lives
undiscounted net cash flows   accounting methodology     estimates assigned to our fixed
expected to be generated by   contains uncertainties     assets are reasonable, factors
the asset. If such assets     because it requires        could cause us to change our
are considered impaired,      management to make         estimates, thus affecting the
the impairment recognized     estimates with respect     future calculation of
is measured by comparing      to the useful lives of     depreciation.
the projected discounted      our fixed assets that we
cash flow of the asset to     believe are reasonable.
the asset carrying value.
Declines in projected cash
flow of the assets could
result in impairment.

The actual economic lives
of our fixed assets may be
different from our
estimated useful lives,
thereby resulting in a
different carrying value.
These evaluations could
result in a change in the
depreciable lives of these
assets and therefore our
depreciation expense in
future periods.

                                   Judgments and         Effect If Actual Results Differ
        Description                Uncertainties                From Assumptions
Revenue Recognition

Revenue is recognized upon    Our revenue recognition    We have not made any material
purchase at our retail        accounting methodology     changes in the accounting
store locations. For our      contains uncertainties     methodology used to measure
ecommerce sales, revenue is   because it requires        future sales returns or
recognized upon estimated     management to make         recognize revenue for our gift
delivery to the customer.     assumptions regarding      card program in the past three
Revenue is recorded net of    future sales returns and   fiscal years. We do not believe
estimated and actual sales    the amount and timing of   there is a reasonable
returns and deductions for    gift cards projected to    likelihood that there will be a
promotions.                   be redeemed by gift card   material change in the future
                              recipients. Our estimate   estimates or assumptions we use
Revenue is not recorded on    of the amount and timing   to recognize revenue. However,
the sale of gift cards. We    of sales returns and       if actual results are not
record the sale of gift       gift cards to be           consistent with our estimates
cards as a current            redeemed is based          or assumptions, we may be
liability and recognize       primarily on historical    exposed to losses or gains that
revenue when a customer       transaction experience.    could be material.
redeems a gift card.
Additionally, an estimate                                A 10% increase in our sales
of the portion of gift                                   return reserve at February 2,
cards that is not expected                               2013 would have decreased net
to be redeemed ("gift card                               income by $0.1 million in
breakage") is recognized in                              fiscal 2012.
net sales after 24 months,
at which time the                                        A 10% increase in our
likelihood of redemption is                              unredeemed gift card breakage
considered remote based on                               life at February 2, 2013 would
our historical redemption                                have decreased net income by
data.                                                    $0.3 million in fiscal 2012.

Stock-Based Compensation

We maintain the Zumiez Inc.   The calculation of         We do not believe there is a
2005 Equity Incentive Plan    stock-based compensation   reasonable likelihood there
under which restricted        expense requires           will be a material change in
stock and non-qualified       management to make         the future estimates or
stock options have been       assumptions and to apply   assumptions we use to determine
granted to employees and      judgment to estimate the   stock-based compensation
non-employee directors.       number of stock awards     expense. However, if actual
                              that will ultimately       results are not consistent with
We determine the fair value   vest and to determine      our estimates or assumptions,
of our restricted stock       the fair value of our      we may be exposed to changes in
awards based on the closing   stock option awards.       stock-based compensation
market price of our stock     These assumptions and      expense that could be material.
on the grant date. In         judgments include
determining the fair value    estimating future
of our stock options, we      employee turnover rates
use the Black-Scholes         and the inputs to the
option pricing model. The     Black-Scholes option
estimated fair value of       pricing model, including
stock-based awards is         expected term. Changes
recognized as compensation    in these assumptions can
expense over the vesting      materially affect our
period, net of estimated      stock-based compensation
forfeitures.                  expense.

As part of the process of Significant judgment is Although management believes preparing the consolidated required in evaluating that the income tax related financial statements, our tax positions and judgments and estimates are income taxes are estimated determining our reasonable, actual results for each of the provision for income could differ and we may be jurisdictions in which we taxes. During the exposed to losses or gains that operate. This process ordinary course of could be material. involves estimating actual business, there are many current tax exposure transactions and Upon income tax audit, any together with assessing calculations for which unfavorable tax settlement temporary differences the ultimate tax generally would require use of resulting from differing determination is our cash and may result in an treatment of items for tax uncertain. For example, increase in our effective and accounting purposes. our effective tax rates income tax rate in the period These differences result in could be adversely of resolution. A favorable tax deferred tax assets and affected by earnings settlement may be recognized as liabilities, which are being lower than a reduction in our effective included on the anticipated in income tax rate in the period consolidated balance jurisdictions where we of resolution. sheets. Valuation have lower statutory allowances may be rates and higher than established when necessary anticipated in to reduce deferred tax jurisdictions where we assets to the amount have higher statutory expected to be realized. rates, by changes in the valuation of our deferred tax assets and liabilities or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations.

Accounting for
Contingencies

We are subject to various Significant judgment is Although management believes claims and contingencies required in evaluating that the contingencies related related to lawsuits, our claims and judgments and estimates are insurance, regulatory and contingencies, including reasonable, our accrual for other matters arising out determining the claims and contingencies could of the normal course of probability that a fluctuate as additional business. We accrue a liability has been information becomes known, liability if the likelihood incurred and whether thereby creating variability in of an adverse outcome is such liability is our results of operations from probable and the amount is reasonably estimable. period to period. Additionally, estimable. If the The estimated accruals actual results could differ and likelihood of an adverse for claims and we may be exposed to losses or outcome is only reasonably contingencies are made gains that could be material. possible (as opposed to based on the best probable), or if an information available, estimate is not which can be highly determinable, we provide subjective. disclosure of a material
claim or contingency in the

Notes to the Consolidated
Financial Statements.




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  Table of Contents
                                   Judgments and         Effect If Actual Results Differ
        Description                Uncertainties                From Assumptions
Goodwill and Other
Indefinite-lived Intangible
Assets

We test goodwill and other    Our goodwill and other     We do not believe there is a
indefinite-lived intangible   indefinite-lived           reasonable likelihood that
assets for impairment on an   intangible assets          there will be a material change
annual basis, or as           impairment loss            in the future estimates or
indicators of impairment      calculations contain       assumptions we use to test for
are present.                  uncertainties because      impairment losses on goodwill
                              they require management    and other indefinite-lived
We have an option to first    to make assumptions in     intangible assets. Based on the
assess qualitative factors    the qualitative            results of our annual
for our goodwill impairment   assessment of relevant     impairment test for goodwill
analysis to determine         events and circumstances   and other indefinite-lived
whether it is necessary to    and estimating the fair    intangible assets, no
perform the qualitative       value of our reporting     impairment was recorded. We
test based on whether it is   units and                  believe based on our assessment
more likely than not that     indefinite-lived           discussed above our goodwill
the fair value of a           intangible assets,         and other indefinite-lived
reporting unit is less than   including estimating       intangible assets are not at
its carrying amount. If we    future cash flows. These   risk of impairment. However, if
chose not to perform the      calculations contain       actual results are not
quantitative test, or we      uncertainties because      consistent with our estimates
. . .