UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended: February 2, 2008
|or                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-51300

ZUMIEZ INC.(Exact name of Registrant as specified in its charter)

|Washington(State or other jurisdiction of
incorporation or organization)                         |  | 91-1040022(IRS Employer
Identification No.)
|------------------------------------------------------------------------------------------------ |  | -------------------------------------------
|6300 Merrill Creek Parkway, Suite B,
Everett, Washington(Address of principal executive offices) |  | 98203(Zip Code)                            

Registrant's telephone number, including area code:(425) 551-1500

Securities registered under Section 12(b) of the Act:Common Stock

Name of each exchange on which registered:The NASDAQ Global Select Market

Securities registered under Section 12(g) of the Act:None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the last ninety days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

|Large accelerated filer o |  | Accelerated filer ý |  | Non-accelerated filer o |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | ----------------------- |  | ---------------------------

Indicate
by check mark if the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

As of the last business day of the second fiscal quarter, August 3, 2007, the aggregate market value of the Registrant's voting and non-voting
stock held by non-affiliates of the Registrant was approximately $660,800,435 using the closing sales price on that day of $36.48.

As
of March 25, 2008, there were 29,002,852 shares of the Registrant's common stock outstanding.



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DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this report is incorporated by reference from the Registrant's definitive proxy statement, relating to the Annual
Meeting of Shareholders scheduled to be held May 28, 2008, which definitive proxy statement will be filed not later than 120 days after the end of the fiscal year to which this report
relates.

ZUMIEZ INC.    FORM 10-K    PART I.

This Form 10-K contains forward-looking statements. These statements relate to our expectations for future events and future financial
performance. Generally, the words "anticipate," "expect," "intend" and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, and future
events and circumstances could differ significantly from those anticipated in the forward-looking statements. These statements are only predictions. Actual events or results may differ materially.
Factors which could affect our financial results are described in Item 1A below and in Item 7 of Part II of this Form 10-K. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-
looking statements. We undertake no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.

Comment regarding our fiscal year end: The Company's fiscal year is based on a 52/53-week year ending on the Saturday closest to
January 31. This change first became effective for fiscal year 2003, which ended on January 31, 2004.

"Zumiez," the "Company," "we," "us," "our" and similar references refer to Zumiez Inc.

Item 1.    BUSINESS

We are a mall based specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of
February 2, 2008 we operated 285 stores primarily located in shopping malls, giving us a presence in 27 states. We were founded in 1978 by Thomas D. Campion, our Chairman. Our current President
and Chief Executive Officer, Richard M. Brooks joined us as Chief Financial Officer in 1993. Our stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing
a lifestyle centered on activities that include skateboarding, surfing, snowboarding, BMX and motocross. We support the action sports lifestyle and promote our brand through a multi-faceted marketing
approach that is designed to integrate our brand image with our customers' activities and interests. This approach, combined with our differentiated merchandising strategy, store design, comprehensive
training programs and passionate employees, allows us to provide an experience for our customers that we believe is consistent with their attitudes, fashion tastes and identities and is otherwise
unavailable in most malls.

Our
stores bring the look and feel of an independent specialty shop to the mall by emphasizing the action sports lifestyle through a distinctive store environment and
high-energy sales personnel. We seek to staff our stores with store associates who are knowledgeable users of our products, which we believe provides our customers with enhanced customer
service and supplements our ability to identify and react quickly to emerging trends and fashions. We design our stores to appeal to teenagers and to serve as a destination for our customers. Most of
our stores, which average approximately 2,900 square feet, feature couches and action sports oriented video game stations that are intended to encourage our

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customers
to shop for longer periods of time and to interact with each other and our store associates. To increase customer traffic, we generally locate our stores near busy areas of the mall such as
food courts, movie theaters, music or game stores and other popular teen retailers. We believe that our distinctive store concept and compelling store economics will provide continued opportunities
for growth in both new and existing markets.

We
believe that our customers desire merchandise and fashion that is rooted in the action sports lifestyle and reflects their individuality. We strive to keep our merchandising mix fresh
by continuously introducing new brands and styles. Our focus on a diverse collection of brands allows us to quickly adjust to changing fashion trends. We believe that our strategic mix of both apparel
and hardgoods, including skateboards, snowboards, bindings, components and other equipment, allows us to strengthen the potential of the brands we sell and helps to affirm our credibility with our
customers. In addition, we supplement our stores with a select offering of private label apparel and products as a value proposition that we believe complements our overall merchandise selection.

Over
our 29-year history, we have developed a corporate culture based on a passion for the action sports lifestyle. Our management philosophy emphasizes an integrated
combination of results measurement, training and incentive programs, all designed to drive sales productivity at the individual store associate level. We empower our store managers to make store-level
business decisions and consistently reward their success. We seek to enhance the productivity of our employees and encourage their advancement by offering comprehensive in-store, regional
and national training programs, which we refer to collectively as "Zumiez University." We have:



Competitive Strengths

We believe that the following competitive strengths differentiate us from our competitors and are critical to our continuing success.

Attractive Lifestyle Retailing ConceptWe target a large population of 12 to 24 year olds, many of whom we believe are
attracted to the action sports lifestyle and desire to promote their personal independence and style through the apparel they wear and the equipment they use. We believe that
action sports are a permanent and growing aspect of youth culture, reaching not only consumers that actually participate in action sports, but also those who seek brands and styles that fit a desired
action sports image. We believe we have developed a brand image that our customers view as consistent with their attitudes, fashion tastes and identity that should allow us to benefit from our
market's anticipated growth.

Differentiated Merchandising Strategy.We have created a highly differentiated retailing concept by offering an extensive
selection of current and relevant action sports brands encompassing apparel, equipment and accessories. The breadth of merchandise offered at our stores exceeds that offered by many other action
sports specialty stores and includes some brands and products that are available within many malls only at our stores. The action sports lifestyle includes activities that are popular at

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different
times throughout the year, providing us the opportunity to shift our merchandise selection seasonally. Many of our customers desire to update their wardrobes and equipment as fashion trends
evolve or the action sports season dictates. We believe that our ability to quickly recognize changing brand and style preferences and transition our merchandise offerings allows us to continually
provide a compelling offering to our customers.

Deep-rooted Corporate Culture.Our culture and brand image enable us to successfully attract and retain high
quality employees who are passionate and knowledgeable about the products we sell. We place great emphasis on customer service and satisfaction, and we have made this a defining feature of our
corporate culture. To preserve our culture, we strive to promote store managers from within and they are given extensive responsibility for most aspects of store level management. We provide these
managers with the knowledge and tools to succeed through our comprehensive training programs and the flexibility to manage their stores to meet localized customer demand.

Distinctive Store Experience.We strive to provide a convenient shopping environment that is appealing and clearly
communicates our distinct brand image. Our stores are designed to reflect an "organized chaos" that we believe is consistent with many teenagers' lifestyles. We seek to attract knowledgeable store
associates who identify with the action sports lifestyle and are able to offer superior customer service, advice and product expertise. To further enhance our customers' experience, most of our stores
feature areas with couches and action sports oriented video game stations that are intended to encourage our customers to shop for longer periods of time, to interact with each other and our store
associates in a familiar and comfortable setting and to visit our stores more frequently. We believe that our distinctive store environment enhances our image as a leading source for apparel and
equipment for the action sports lifestyle.

Disciplined Operating Philosophy.We have an experienced senior management team. Our management team has built a strong
operating foundation based on sound retail principles that underlie our unique culture. Our philosophy emphasizes an integrated combination of results measurement, training and incentive programs, all
designed to drive sales productivity down to the individual store associate level. Our comprehensive training programs are designed to provide our managers and store associates with
enhanced product knowledge, selling skills and operational expertise. We believe that our merchandising team's immersion in the actions sports lifestyle, supplemented with feedback from our customers,
store associates and managers, allows us to consistently identify and react to emerging fashion trends. We believe that this, combined with our inventory planning and allocation processes and systems,
helps us mitigate markdown risk.

High-Impact, Integrated Marketing Approach.We seek to build relationships with our customers through a
multi-faceted marketing approach that is designed to integrate our brand image with the action sports lifestyle. Our marketing efforts focus on reaching our customers in their environment and feature
extensive grassroots marketing events, such as the Zumiez Couch Tour, which is a series of interactive sports, music and lifestyle events held at various locations throughout the United States. Our
marketing efforts also incorporate local sporting and music event promotions, advertising in magazines popular with our target market, interactive contest sponsorships that actively involve our
customers with our brands and products. Events and activities such as these provide opportunities for our customers to develop a strong identity with our culture and brand. We believe that our
immersion in the action sports lifestyle allows us to build credibility with our customers and gather valuable feedback on evolving customer preferences.

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Growth Strategy

We intend to expand our presence as a leading action sports lifestyle retailer by:

Opening New Store Locations.We believe that the action sports lifestyle has national appeal that provides store expansion
opportunities throughout the country. Since the end of fiscal 2003 through the year ended February 2, 2008 (fiscal 2007) we have opened or acquired 174 new stores, consisting of 27 new stores
in fiscal 2004, 35 new stores in fiscal 2005, 42 new stores in fiscal 2006, and 50 new stores in fiscal 2007. We also acquired 100% of the ownership of 20 stores (17 in Texas, 2 in Oklahoma and 1 in
California) from Action Concepts Fast Forward, Ltd. (a limited partnership) ("Fast Forward"), an apparel and accessory retail sales company. We have successfully opened stores in diverse
markets throughout the United States, which we believe demonstrates the portability and growth potential of our concept. We plan to open approximately 57 stores in fiscal 2008, including stores in our
existing markets and in new markets, to take advantage of what we believe to be a compelling economic store model. We plan to continue to increase the size of our average store by opening new store
locations that average approximately 3,000 square feet. These larger locations will accommodate an expanded merchandise mix, while maintaining our unique in-store experience and culture.

Continuing to Generate Sales Growth through Improved Store Level Productivity.We seek to maximize our comparable store sales
and net sales per square foot by maintaining consistent store-level execution and offering our customers a broad and relevant selection of action sports brands and products. We also intend to continue
to expand our brand awareness in an effort to maintain high levels of customer traffic.

Enhancing our Brand Awareness through Continued Marketing and Promotion.We believe that a key component of our success is
the brand exposure that we receive from our marketing events, promotions and activities that embody the action sports lifestyle. These are designed to assist us in increasing brand awareness in our
existing markets and expanding into new markets by strengthening our connection with our target customer base. We believe that our marketing efforts have also been successful in generating and
promoting interest in our product offerings. In addition, we use our internet presence, designed to convey our passion for the action sports lifestyle, to increase our brand awareness. We plan to
continue to expand our integrated marketing efforts by promoting more events and activities in our existing and new markets.

The Action Sports Market

We believe that action sports are a permanent and growing aspect of youth culture, reaching not only consumers that actually participate in action sports, but
also those who seek brands and styles that fit a desired action sports image. We believe that teens enjoy shopping in malls and purchasing clothing and fashion-related merchandise.

Merchandising and Purchasing

Merchandising.Our goal is to be viewed by our customers, both young men and young women, as the definitive source of
merchandise for the action sports lifestyle. We believe that the breadth of merchandise offered at our stores, which includes apparel, footwear, equipment and accessories, exceeds that offered by many
other action sports specialty stores at a single location, and makes our stores a single-stop purchase destination for our target customers. Our apparel offerings include tops, bottoms,
outerwear and accessories such as caps, belts and sunglasses. Our footwear offerings primarily consist of action sports related athletic shoes and sandals. Our equipment offerings, or hardgoods,
include skateboards, snowboards and ancillary gear such as boots and bindings. We also offer a selection of other items, such as miscellaneous novelties and DVDs.

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We
seek to identify action sports oriented fashion trends as they develop and to respond in a timely manner with a relevant in-store product assortment. We strive to keep our
merchandising mix fresh by continuously introducing new brands or styles in response to the evolving desires of our customers. We also take advantage of the change in action sports seasons during the
year to maintain an updated product selection. Our merchandise mix may vary by region, reflecting the specific action sports preferences and seasons in different parts of the country.

We
believe that offering an extensive selection of current and relevant brands used and sometimes developed by professional action sports athletes is integral to our overall success. No
single brand accounted for more than 7.1% and 6.6% of our net sales in fiscal 2006 and fiscal 2007, respectively. We believe that our strategic mix of both apparel and hardgoods, including
skateboards, snowboards, bindings, components and other equipment, allows us to strengthen the potential of the brands we sell and affirms our credibility with our customers.

We
believe that our ability to maintain an image consistent with the action sports lifestyle is important to our key vendors. Given our scale and market position, we believe that many of
our key vendors view us as an important retail partner. This position helps ensure our ability to procure a relevant product assortment and quickly respond to the changing fashion interests of our
customers. Additionally, we believe we are presented with a greater variety of products and styles by some of our vendors, as well as certain specially designed items that are only distributed to our
stores.

We
supplement our merchandise assortment with a select offering of private label products across many of our apparel product categories. Our private label products complement the branded
products we sell, and allow us to cater to the more value-oriented customer. For fiscal 2005, 2006, and 2007 our private label merchandise represented approximately 12.9%, 14.3% and 15.4%
respectively, of our net sales.

PurchasingOur merchandising staff consists of a general merchandising manager, planning staff and a staff of buyers and
assistant buyers. Our purchasing approach focuses on quality, speed and cost in order to provide timely delivery of merchandise to our stores. We have developed a disciplined approach to buying and a
dynamic inventory planning and allocation process to support our merchandise strategy. We utilize a broad vendor base that allows us to shift our merchandise purchases as required to react quickly to
changing market conditions. We manage the purchasing and allocation process by reviewing branded merchandise lines from new and existing vendors, identifying emerging fashion trends and selecting
branded merchandise styles in quantities, colors and sizes to meet inventory levels established by management. We also coordinate inventory levels in connection with our promotions and seasonality.
Our management information systems provide us with current inventory levels at each store and for our company as a whole, as well as current selling history within each store
by merchandise classification and by style. We purchase most of our branded merchandise from domestic vendors.

Our
merchandising staff remains in tune with the action sports culture by participating in action sports, attending relevant events and concerts, watching action sports related
programming and reading action sports publications. In order to identify evolving trends and fashion preferences, our staff spends considerable time analyzing sales data by category and brand down to
the stock keeping unit, or "SKU" (an identification used for inventory tracking purposes) level, gathering feedback from our stores and customers, shopping in key markets and soliciting input from our
vendors. As part of our feedback collection process, our merchandise team receives merchandise requests from both customers and store associates and meets with our store managers two to three times
per year to discuss current customer trends.

We
source our private label merchandise from foreign manufacturers around the world. We have cultivated our private brand sources with a view towards high quality merchandise, production
reliability and consistency of fit. We believe that our knowledge of fabric and production costs combined with a flexible sourcing base enables us to source high-quality private label
goods at favorable costs.

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Distribution and Fulfillment

Timely and efficient distribution of merchandise to our stores is an important component of our overall business strategy. We process all of our merchandise
through our distribution center in Everett, Washington. At this facility, merchandise is inspected, allocated to stores, ticketed when necessary, and boxed for distribution to our stores or segregated
in our e-commerce fulfillment area for delivery to our internet customers. A significant percentage of our merchandise is currently pre-ticketed by our vendors, which allows us
to ship merchandise more quickly, reduces labor costs and enhances our inventory management. We continue to work with our vendors to increase the percentage of pre-ticketed merchandise.
Each store is typically shipped merchandise five times a week, providing our stores with a steady flow of new merchandise. We currently use United Parcel Service to ship merchandise to our stores. We
believe our current distribution infrastructure is sufficient to accommodate our expected store growth and expanded product offerings over the next several years.

Stores

As of February 2, 2008 we operated 285 stores with an average of approximately 2,900 square feet per store in 27 states. All of our stores are leased and
substantially all are located in shopping malls of different types. All references in this Annual Report on Form 10-K to square footage of our stores refers to gross square footage,
including retail selling, storage and back-office space.

The
following store list shows the number of stores we operated in each state as of February 2, 2008:

State

Number of
StoresAlaska

2Arizona

11California

57Colorado

16Connecticut

5Delaware

1Florida

10Iowa

1Idaho

5Illinois

13Indiana

1Maryland

3Minnesota

10Montana

4New Jersey

14Nevada

7New Mexico

4New York

30Oklahoma

2Oregon

11Pennsylvania

10South Dakota

1Texas

25Utah

11Washington

22Wisconsin

7Wyoming

2


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As
of February 2, 2008 approximately 78.2% of our stores had been opened or remodeled within the previous five years. The following table shows the number of stores (excluding
temporary stores that we operate from time to time for special events) opened and closed in each of our last five fiscal years including 20 stores acquired in the fiscal 2006 Fast Forward acquisition
(we closed one Fast Forward store in fiscal 2006):

Fiscal Year

Stores
Opened

Stores
Acquired

Stores
Closed

Total Number of
Stores End of Year2003

15



1

1132004

27





1402005

35



1

1742006

42

20

1

2352007

50





285


Store Design and Environment.We design our stores to create a distinctive and engaging shopping environment that we believe
resonates with our customers and reflects an "organized chaos" that is consistent with many teenagers' lifestyles. Our stores feature an industrial look with concrete floors and open ceilings, dense
merchandise displays, action sports focused posters and signage and popular music, all of which are consistent with the look and feel of an independent action sports specialty shop. Most of our stores
have couches and action sports oriented video game stations that are intended to encourage our customers to shop for longer periods of time, to interact with each other and our store associates and to
visit our stores more frequently. Our stores are constructed and finished to allow us to efficiently shift merchandise displays throughout the year as the action sports season dictates. To further
enhance our customers' experience, we seek to attract enthusiastic store associates who are knowledgeable about our products and are able to offer superior customer service and expertise. We believe
that our store atmosphere enhances our image as a leading provider of action sports lifestyle merchandise.

As
of February 2, 2008 our stores averaged 2,900 square feet. We have been, and plan to continue, opening new stores that average approximately 3,000 square feet, slightly larger
than our historical average size. These larger stores are intended to enable us to offer an expanded merchandise selection while maintaining our distinctive store environment.

Expansion Opportunities and Site Selection.Since the end of fiscal 2003, we have opened 174 stores, including 20 acquired in
fiscal 2006 through the Fast Forward acquisition, to enhance our position in existing markets, to enter into new markets, to build our brand awareness and to capitalize on our successful store model.
We plan to open 57 new stores in fiscal 2008 and to continue to open a significant number of new stores in future years. Our new store openings are planned in both existing and new markets.

In
selecting a location for a new store, we target high-traffic mall space with suitable demographics and favorable lease terms. We seek locations near busy areas of the mall
such as food courts, movie theaters, music or game stores and other popular teen retailers. We generally locate our stores in malls in which other teen-oriented retailers have performed
well. We also focus on evaluating the market and mall-specific competitive environment for potential new
store locations. We seek to diversify our store locations regionally and by caliber of mall. We have currently identified a significant number of potential sites for new stores in malls with
appropriate market characteristics.

We
have successfully and consistently implemented our store concept across a variety of mall classifications and geographic locations. Our 61 new and acquired stores opened during fiscal
2006, including 19 stores, net, acquired from Fast Forward, generated average net sales of approximately $1.2 million during their first full year of operations. On average, our net investment
to open the 42 new stores was approximately $314,000 which includes capital expenditures, net of landlord

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contributions.
We opened 50 new stores in fiscal 2007 with an average net investment of approximately $330,000 which includes capital expenditures, net of landlord contributions. However, our net
investment to open new stores and net sales generated by new stores vary significantly and depend on a number of factors, including the geographic location, type of mall and size of those stores.
Accordingly, net sales and other operating results for stores that we open or have opened subsequent to the end of fiscal 2007, as well as our net investment to open those stores, may differ
substantially from net sales and other operating results and our net investment for the stores we opened in fiscal 2007.

Store Management, Operations and Training.We believe that our success is dependent in part on our ability to attract, train,
retain and motivate qualified employees at all levels of our organization. We have developed a corporate culture that we believe empowers the individual store managers to make store-level business
decisions and consistently rewards their success. We are committed to improving the skills and careers of our workforce and providing advancement opportunities for employees, as evidenced by a
significant number of our store managers that began their careers with us as store associates.

Our
store operations are currently organized into regions and districts. Each region is managed by a regional manager, responsible for approximately 50 stores. We employ one district
sales manager per district, responsible for the sales and operations of approximately 10 stores. Each of our stores is typically staffed with one store manager, one or more assistant managers and two
or more store associates, depending on the season. The number of store associates we employ generally increases during peak selling seasons, particularly the back-to-school and
the winter holiday seasons, and will increase to the extent that we open new stores.

We
provide our managers with the knowledge and tools to succeed through our comprehensive training programs and the flexibility to manage their stores to meet customer demands. While
general guidelines for our merchandise assortments, store layouts and in-store visuals are provided by our home office, we give our store managers substantial discretion to tailor their
stores to the individual market and empower them to make store-level business decisions. We design group training programs for our managers, such as our "Zumiez Managers Retreat," to improve both
operational expertise and supervisory skills. Our comprehensive training programs are offered at the store, regional and national levels. Our programs allow managers from all geographic locations to
interact with each other and exchange ideas to better operate stores. Our regional, district and store managers are compensated in part based on the sales volume of the store or stores they manage.

Our
store associates generally have an interest in the action sports lifestyle and are knowledgeable about our products. Through our training, evaluation and incentive programs, we seek
to enhance the productivity of our store associates. Our store associates receive extensive training from their managers to improve their product expertise and selling skills. We evaluate our store
associates weekly on measures such as sales per hour, items per transaction and dollars per transaction to ensure consistent productivity, to reward top performers, and to identify potential training
opportunities. We provide sales incentives for store associates such as sales-based commissions in addition to hourly wages and our annual "Zumiez 100K" event, which recognizes outstanding sales
performance in a resort setting that combines recreation and education. These and other incentive programs are designed to promote a competitive, yet fun, corporate culture that is consistent with the
action sports lifestyle we seek to promote.

Internet Operations.Our website provides current information on our upcoming events and promotions, store locations and
merchandise selection. We also sell products directly through our website, although internet sales currently comprise a small portion of our overall net sales. In fiscal years 2005, 2006, and 2007
internet sales represented approximately 1% of our total net sales. With respect to the freight component of our internet sales, we arrange and pay the freight for our

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customers
and bill them for this service. Such amounts billed are included in revenue and the related freight cost is charged to cost of goods sold.

Marketing and Advertising

We seek to reach our target customer audience through a multi-faceted marketing approach that is designed to integrate our brand image with the action sports
lifestyle. Our marketing efforts focus on reaching our customers in their environment, and feature extensive grassroots marketing events, such as the Zumiez Couch Tour, which give our customers an
opportunity to experience and participate in the action sports lifestyle.

Our
marketing efforts also incorporate local sporting and music event promotions, advertising in magazines popular with our target market such as Transworld Snowboarding and Transworld
Skateboarding, interactive contest sponsorships that actively involve our customers with our brands and products. We believe that our immersion in the action sports lifestyle allows us to build
credibility with our target audience and gather valuable feedback on evolving customer preferences.

Our
grassroots marketing events are built around the demographics of our customer base and offer an opportunity for our customers to develop a strong identity with our brand and culture.
For example, the Zumiez Couch Tour is a series of entertainment events that includes skateboarding demonstrations from top professionals, autograph sessions, competitions and live music, and has
featured some of today's most popular teenage personalities in action sports and music. The Zumiez Couch Tour provides a high-impact platform where customers can interact with some of
their favorite action sports athletes and vendors can showcase new products. In 2007 our Zumiez Couch Tour completed a twelve city tour across the United States.

Advertising
expense was approximately, $250,000, $651,000 and $748,000 in fiscal 2005, 2006 and 2007, respectively. The marketing expense increase in fiscal 2007 over fiscal 2006 of
approximately $97,000 was primarily due to signage associated with the increase in new store openings of an additional 8 stores in fiscal 2007 over fiscal 2006 and additional costs to support fiscal
2007 marketing initiatives.

Management Information Systems

Our management information systems provide integration of store, merchandising, distribution, financial and human resources functions. We use software licensed
from ANT USA for merchandise planning and software licensed from Epicor CRS, that is used for SKU and classification inventory tracking, purchase order management, merchandise distribution, automated
ticket making and sales audit functions. Our financial systems are licensed from SAGE and are used for general ledger, accounts payable, payroll, budgeting, financial reporting and asset management.

Sales
are updated daily in our merchandising reporting systems by polling sales information from each store's point-of-sale, or "POS," terminals. Our POS system
consists of registers providing processing of retail transactions, price look-up, time and attendance and e-mail. Sales information, inventory tracking and payroll hours are
uploaded to our central host system. The host system downloads price changes, performs system maintenance and provides software updates to the stores through automated nightly two-way
electronic communication with each store. We evaluate information obtained through nightly polling to implement merchandising decisions, including product purchasing/reorders, markdowns and allocation
of merchandise on a daily basis.

In
addition to our home office staff, each of our regional and district managers can access relevant business information, including current and historical sales by store, district and
region, transaction information and payroll data.

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Competition

The teenage and young adult retail apparel, hardgoods and accessories industry is highly competitive. We compete with other retailers for vendors, teenage and
young adult customers, suitable store locations and qualified store associates and management personnel. In the softgoods markets, which includes apparel, accessories and footwear, we currently
compete with other teenage-focused retailers such as Abercrombie & Fitch Co., Aeropostale, Inc., American Eagle Outfitters, Inc., Anchor Blue Clothing Company, Charlotte
Russe Inc., Claire's Stores, Inc., Forever 21, Inc., Hollister Co., Hot Topic, Inc., Old Navy, Inc., Pacific Sunwear of California, Inc., The
Buckle, Inc., The Wet Seal, Inc. and Urban Outfitters, Inc. In addition, in the softgoods markets we compete with independent specialty shops, department stores and direct
marketers that sell similar lines of merchandise and target customers through catalogs and e-commerce. In the hardgoods markets, which includes skateboards, snowboards, bindings,
components and other equipment, we compete directly or indirectly with the following categories of companies: other specialty retailers that compete with us across a significant portion of our
merchandising categories, such as local snowboard and skate shops; large-format sporting goods stores and chains, such as Big 5 Sporting Goods Corporation, Dick's Sporting Goods, Inc., Sport
Chalet, Inc. and The Sports Authority Inc., and Internet retailers.

Competition
in our sector is based on, among other things, merchandise offerings, store location, price and the ability to identify with the customer. We believe that we compete
favorably with many of our competitors based on our differentiated merchandising strategy, compelling store environment and deep-rooted culture. However, some of our competitors are larger
than we are and have substantially greater financial, marketing and other resources than we do. See "Item 1A Risk Factors." We may be unable to compete favorably in the highly competitive
retail industry, and if we lose customers to our competitors, our sales could decrease."

Trademarks

"Zumiez," "Free World," "ALab", "Tricycle", and "Limelight" are among our trademarks registered with the United States Patent and Trademark Office. We regard our
trademarks as valuable and intend to maintain such marks and any related registrations. We currently have trademarks pending for the "Empyre", "Rälik", "Aperture", 100K, Best Foot
Forward, Couch Tour, Zumiez 100K, Zumiez Couch Tour and "Alibi" marks. We are not aware of any claims of infringement or other challenges to our right to use our marks in the United States. We
vigorously protect our trademarks. We also own numerous domain names which have been registered with Corporation for Assigned Names and Numbers.

Employees

As of February 2, 2008 we employed approximately 1,500 full-time and approximately 1,800 part-time employees, of which
approximately 400 were employed at our home office and approximately 2,900 at our store locations. However, the number of part-time employees fluctuates depending on our seasonal needs
and, in fiscal 2007, varied from between approximately 1,500 and 2,900 part-time employees. None of our employees are represented by a labor union and we believe generally that our
relationship with our employees is good.

Our
principal website address is www.zumiez.com. We make available at this address under investor relations, free of charge, our proxy statement, annual report to shareholders, annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably
practicable after such material is electronically filed with or furnished to the SEC at http://ir.zumiez.com. Information available on our website is not incorporated by reference in and is not deemed
a part of this Form 10-K.

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Item 1A.    RISK FACTORS

Investing in our securities involves a high degree of risk. The following risk factors, issues and uncertainties should be considered in
evaluating our future prospects. In particular, keep these risk factors in mind when you read "forward-looking" statements elsewhere in this report. Forward-looking statements relate to our
expectations for future events and time periods. Generally, the words "anticipate," "believe," "expect," "intend" and similar expressions identify forward-looking statements.
Forwardlooking statements involve risks and uncertainties, and future events and circumstances could differ significantly from those anticipated in the forwardlooking
statements. Any of the following risks could harm our business, operating results or financial condition and could result in a complete loss of your investment. Additional risks and uncertainties that
are not yet identified or that we currently think are immaterial may also harm our business and financial condition in the future.

Our growth strategy depends on our ability to open and operate a significant number of new stores each year, which could strain our resources and cause
the performance of our existing stores to suffer.

Our growth largely depends on our ability to open and operate new stores successfully. However, our ability to open new stores is subject to a variety of risks
and uncertainties, and we may be unable to open new stores as planned, and any failure to successfully open and operate new stores would have a material adverse effect on our results of operations and
on the market price of our common stock. We intend to continue to open a significant number of new stores in future years while remodeling a portion of our existing store base annually. In addition,
our proposed expansion will place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our business less effectively, which
in turn could cause deterioration in the financial performance of our individual stores and our overall business. To the extent our new store openings are in markets where we already have stores, we
may experience reduced net sales in existing stores in those markets. In addition, successful execution of our growth strategy may require that we obtain additional financing, and we cannot assure you
that we will be able to obtain that financing on acceptable terms or at all.

If we fail to effectively execute our expansion strategy, we may not be able to successfully open new store locations in a timely manner, if at all,
which could have an adverse affect on our net sales and results of operations.

Our ability to open and operate new stores successfully depends on many factors, including, among others, our ability to:



In
addition, many of our planned new stores are to be opened in regions of the United States in which we currently have few, or no, stores. The expansion into these markets may present
competitive, merchandising and distribution challenges that are different from those currently encountered in our existing markets. Any of these challenges could adversely affect our business and
results of operations.

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Our business is dependent upon our being able to anticipate, identify and respond to changing fashion trends, customer preferences and other
fashion-related factors; failure to do so could have a material adverse effect on us.

Customer tastes and fashion trends in the action sports lifestyle market are volatile and tend to change rapidly. Our success depends on our ability to
effectively anticipate, identify and respond to changing fashion tastes and consumer preferences, and to translate market trends into appropriate, saleable product offerings in a timely manner. If we
are unable to successfully anticipate, identify or respond to changing styles or trends and misjudge the market for our products or any new product lines, our sales may be lower than predicted and we
may be faced with a substantial amount of unsold inventory or missed opportunities. In response to such a situation, we may be forced to rely on markdowns or promotional sales to dispose of excess or
slow-moving inventory, which could have a material adverse effect on our results of operations.

Our ability to attract customers to our stores depends heavily on the success of the shopping malls in which our stores are located; any decrease in
customer traffic in those malls could cause our sales to be less than expected.

In order to generate customer traffic we depend heavily on locating our stores in prominent locations within successful shopping malls. Sales at these stores are
derived, in part, from the volume of traffic in those malls. Our stores benefit from the ability of a mall's other tenants to generate consumer traffic in the vicinity of our stores and the continuing
popularity of malls as shopping destinations. Our sales volume and mall traffic generally may be adversely affected by, among other things, economic downturns in a particular area, competition from
Internet retailers, non-mall retailers and other malls, increases in gasoline prices and the closing or decline in popularity of other stores in the malls in which we are located. A
reduction in mall traffic as a result of these or any other factors could have a material adverse effect on our business, results of operations and financial condition.

Our sales and inventory levels fluctuate on a seasonal basis, leaving our operating results particularly susceptible to changes in
back-to-school and holiday shopping patterns.

Our sales are typically disproportionately higher in the third and fourth fiscal quarters of each fiscal year due to increased sales during the
back-to-school and winter holiday shopping seasons. Sales during these periods cannot be used as an accurate indicator of annual results. Our sales in the first and second
fiscal quarters are typically lower than in our third and fourth fiscal quarters due, in part, to the traditional retail slowdown immediately following the winter holiday season. Any significant
decrease in sales during the back-to-school and winter holiday seasons would have a material adverse effect on our financial condition and results of operations. In addition,
in order to prepare for the back-to-school and winter holiday shopping seasons, we must order and keep in stock significantly more merchandise than we carry during other parts
of the year. Any unanticipated decrease in demand for our products during these peak shopping seasons could require us to sell excess inventory at a substantial markdown, which could have a material
adverse effect on our business, results of operations and financial condition.

Our quarterly results of operations are volatile and may decline.

Our quarterly results of operations have fluctuated significantly in the past and can be expected to continue to fluctuate significantly in the future. As
discussed above, our sales and operating results are typically lower in the first and second quarters of our fiscal year due, in part, to the traditional retail slowdown immediately following the
winter holiday season. Our quarterly results of operations are affected by a variety of other factors, including:



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Failure to successfully integrate any businesses or stores that we acquire could have an adverse impact on our results of operations and financial
performance.

We may from time to time acquire other retail stores, individually or in groups, or businesses. In particular, in June 2006 we completed the acquisition of the
Fast Forward an apparel and accessory retail sales company. We may experience difficulties in assimilating any stores or businesses we may acquire and any such acquisitions may also result in the
diversion of our capital and our management's attention from other business issues and opportunities. We may not be able to successfully integrate any
stores or businesses that we may acquire, including their facilities, personnel, financial systems, distribution, operations and general operating procedures. If we fail to successfully integrate
acquisitions or if such acquisitions fail to provide the benefits that we expect to receive, we could experience increased costs and other operating inefficiencies, which could have an adverse effect
on our results of operations and financial performance.

Our business is susceptible to weather conditions that are out of our control including the potential risks of unpredictable weather patterns, including
any weather patterns associated with global warming, and the resultant unseasonable weather could have a negative impact on our results of operations.

Our business is susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures (including any weather patterns
associated with global warming) during the winter season or cool weather during the summer season could render a portion of our inventory incompatible with those unseasonable conditions. These
prolonged unseasonable weather conditions, particularly in regions of the United States where we have a concentration of stores, could have a material adverse effect on our business and results of
operations.

We may be unable to compete favorably in the highly competitive retail industry, and if we lose customers to our competitors, our sales could decrease.

The teenage and young adult retail apparel, hardgoods and accessories industry is highly competitive. We compete with other retailers for vendors, teenage and
young adult customers, suitable store locations, qualified store associates and management personnel. In the softgoods market which includes apparel, accessories and footwear, we currently compete
with other teenage-focused retailers. In addition, in the softgoods market we compete with independent specialty shops, department stores, and direct marketers that sell similar lines of merchandise
and target customers through catalogs and e-commerce. In the hardgoods market which includes skateboards, snowboards, bindings, components and other equipment, we compete directly or
indirectly with the following categories of companies:

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other
specialty retailers that compete with us across a significant portion of our merchandising categories, such as local snowboard and skate shops; large-format sporting goods stores and chains and
Internet retailers.

Some
of our competitors are larger than we are and have substantially greater financial, marketing and other resources than we do. Direct competition with these and other retailers may
increase significantly in the future, which could require us, among other things, to lower our prices and could result in the loss of our customers. Current and increased competition could have a
material adverse effect on our business, results of operations and financial condition.

If we fail to maintain good relationships with vendors or if a vendor is otherwise unable or unwilling to supply us with adequate quantities of their
products at acceptable prices, our business and financial performance could suffer.

Our business is dependent on continued good relations with our vendors. In particular, we believe that we generally are able to obtain attractive pricing and
other terms from vendors because we are perceived as a desirable customer, and deterioration in our relationship with our vendors would likely have a material adverse effect on our business. We do not
have any contractual relationships with our vendors and, accordingly, there can be no assurance that our vendors will provide us with an adequate supply or quality of products or acceptable pricing.
Our vendors could discontinue selling to us or raise the prices they charge at any time. There can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on terms
acceptable to us in the future. Also, certain of our vendors sell their products directly to the retail market and therefore compete with us directly, and other vendors may decide to do so in the
future. There can be no assurance that such vendors will not decide to discontinue supplying their products to us, supply us only less popular or lesser quality items, raise the prices they charge us
or focus on selling their products directly. Any inability to acquire suitable merchandise at acceptable prices, or the loss of one or more key vendors, would have a material adverse effect on our
business, results of operations and financial condition.

If we lose key management or are unable to attract and retain the talent required for our business, our financial performance could suffer.

Our performance depends largely on the efforts and abilities of our senior management, including our Co-Founder and Chairman, Thomas D. Campion, our
President and Chief Executive Officer, Richard M. Brooks, our Chief Financial Officer, Trevor S. Lang, our Executive Vice President and General Merchandising Manager, Lynn K. Kilbourne and our
Executive Vice President of Stores, Ford K. Wright. None of our employees, except Mr. Brooks, has an employment agreement with us and we do not plan to obtain key person life insurance covering
any of our employees. If we lose the services of one or more of our key executives, we may not be able to successfully manage our business or achieve our growth objectives. As our business grows, we
will need to attract and retain additional qualified management personnel in a timely manner and we may not be able to do so.

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Our failure to meet our staffing needs could adversely affect our ability to implement our growth strategy and could have a material impact on our
results of operations.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including regional managers, district
managers, store managers and store associates, who understand and appreciate our corporate culture based on a passion for the action sports lifestyle and are able to adequately represent this culture
to our customers. Qualified individuals of the requisite caliber, skills and number needed to fill these positions may be in short supply in some areas, and the employee turnover rate in the retail
industry is high. Competition for qualified employees could require us to pay higher wages to attract a sufficient number of suitable employees. If we are unable to hire and retain store managers and
store associates capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and knowledge of our merchandise, our ability to open new
stores may be impaired and the performance of our existing and new stores could be materially adversely affected. We are also dependent upon temporary personnel to adequately staff our stores and
distribution center, particularly during busy periods such as the back-to-school and winter holiday seasons. There can be no assurance that we will receive adequate assistance
from our temporary personnel, or that there will be sufficient sources of temporary personnel. Although none of our employees is currently covered by collective bargaining agreements, we cannot
guarantee that our employees will not elect to be represented by labor unions in the future, which could increase our labor costs and could subject us to the risk of work stoppages and strikes. Any
such failure to meet our staffing needs, any material increases in employee turnover rates, any increases in labor costs or any work stoppages or interruptions or strikes could have a material adverse
effect on our business or results of operations.

Our operations, including our sole distribution center, are concentrated in the western United States, which makes us susceptible to adverse conditions
in this region.

Our home office and sole distribution center are located in a single facility in Washington, and a substantial number of our stores are located in Washington and
the western half of the United States. We also have a substantial number of stores in the New York/New Jersey region and Texas. As a result, our business may be more susceptible to regional factors
than the operations of more geographically diversified competitors. These factors include, among others, economic and weather conditions, demographic and population changes and fashion tastes. In
addition, we rely on a single distribution center in Everett, Washington to receive, store and distribute merchandise to all of our stores and to fulfill our internet sales. As a result, a natural
disaster or other catastrophic event, such as an earthquake affecting western Washington, in particular, or the West Coast, in general, could
significantly disrupt our operations and have a material adverse effect on our business, results of operations and financial condition.

We are required to make substantial rental payments under our operating leases and any failure to make these lease payments when due would likely have a
material adverse effect on our business and growth plans.

We do not own any of our retail stores or our combined home office and distribution center, but instead we lease all of these facilities under operating leases.
Payments under these operating leases account for a significant portion of our operating expenses. For example, total rental expense, including additional rental payments (or "percentage rent") based
on sales of some of the stores, common area maintenance charges and real estate taxes, under operating leases was $22.2 million, $31.9 million and $43.5 million for fiscal 2005,
2006, and 2007 respectively. As of February 2, 2008 we were a party to operating leases requiring future minimum lease payments aggregating approximately $134.1 million through fiscal
year 2012 and approximately $87.5 million thereafter. In addition, substantially all of our store leases provide for additional rental payments based on sales of the respective stores, as well
as common area maintenance charges, and require that we pay real estate taxes, none of which is included

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in
the amount of future minimum lease payments. We expect that any new stores we open will also be leased by us under operating leases, which will further increase our operating lease expenses.

Our
substantial operating lease obligations could have significant negative consequences, including:



We
depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities,
and sufficient funds are not otherwise available to us from borrowings under bank loans or from other sources, we may not be able to service our operating lease expenses, grow our business, respond to
competitive challenges or to fund our other liquidity and capital needs, which would have a material adverse effect on us.

The terms of our revolving credit facility impose operating and financial restrictions on us that may impair our ability to respond to changing business
and economic conditions. This impairment could have a significant adverse impact on our business.

We have a $25 million revolving credit facility with Wells Fargo HSBC Trade Bank, N.A., which we use for inventory financing and other general corporate
purposes, that contains a number of significant restrictions and covenants that generally limit our ability to, among other things, (1) incur additional indebtedness, (2) enter into
certain transactions and (3) undergo a change in ownership. In addition, all of our personal property, including our inventory, equipment and fixtures, secure our obligations under the
revolving credit agreement. Our credit agreement also contains financial covenants that require us to meet specified financial tests and ratios, including minimum net income after taxes, minimum total
liabilities divided by tangible net worth and minimum quick asset ratio. Our ability to comply with these ratios may be affected by events beyond our control.

A
breach of any of these restrictive covenants or our inability to comply with the required financial tests and ratios could result in a default under the credit agreement. If a default
occurs, the lender may elect to declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay outstanding borrowings
when due, whether at their maturity or if declared due and payable by the lender following a default, the lender has the right to proceed against the collateral granted to it to secure the
indebtedness. As a result, any breach of these covenants or failure to comply with these tests and ratios could have a material adverse effect on us. There can be no assurance that we will not breach
the covenants or fail to comply with the tests and ratios in our credit agreement or any other debt agreements we may enter into in the future and, if a breach occurs, there can be no assurance that
we will be able to obtain necessary waivers or amendments from the lenders.

The
restrictions contained in our credit agreement could: (1) limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our
activities or business plans; and (2) adversely affect our ability to finance our operations, strategic acquisitions, investments or other capital needs or to engage in other business
activities that would be in our interest.

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Our business could suffer as a result of small parcel delivery services such as United Parcel Service or Federal Express being unable to distribute our
merchandise.

We rely upon small parcel delivery services for our product shipments, including shipments to, from and between our stores. Accordingly, we are subject to risks,
including employee strikes and inclement weather, which may affect their ability to meet our shipping needs. Among other things, any circumstances that require us to use other delivery services for
all or a portion of our shipments could result in increased costs and delayed deliveries and could harm our business materially. In addition, although we have contracts with small parcel delivery
services, we have the right to terminate these contracts upon 30 days written notice. Although the contracts with these small parcel delivery services provide certain discounts from the
shipment rates in effect at the time of shipment, the contracts do not limit their ability to raise the shipment rates at any time. Accordingly, we are subject to the risk that small parcel delivery
services may increase the rates they charge, that they may terminate their contracts with us, that they may decrease the rate discounts provided to us when an existing contract is renewed or that we
may be unable to agree on the terms of a new contract with them, any of which could materially adversely affect our operating results.

Our business could suffer if a manufacturer fails to use acceptable labor practices.

We do not control our vendors or the manufacturers that produce the products we buy from them, nor do we control the labor practices of our vendors and these
manufacturers. The violation of labor or other laws by any of our vendors or these manufacturers, or the divergence of the labor practices followed by any of our vendors or these manufacturers from
those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt, the shipment of finished products to us or damage our reputation. Any of these, in turn, could have a
material adverse effect on our financial condition and results of operations. In that regard, most of the products sold in our stores are manufactured overseas, primarily in Asia and Central America,
which may increase the risk that the labor practices followed by the manufacturers of these products may differ from those considered acceptable in the United States.

Our failure to adequately anticipate a correct mix of private label merchandise may have a material adverse effect on our business.

Sales from private label merchandise accounted for 15.4% of our net sales in fiscal 2007. We may take steps to increase the percentage of net sales of private
label merchandise in the future, although there can be no assurance that we will be able to achieve increases in private label merchandise sales as a percentage of net sales. Because our private label
merchandise generally carries higher gross margins than other merchandise, our failure to anticipate, identify and react in a timely manner to fashion trends with our private label merchandise, would
likely have a material adverse effect on our comparable store sales, financial condition and results of operations.

Most of our merchandise is produced by foreign manufacturers, therefore the availability and costs of these products may be negatively affected by risks
associated with international trade and other international conditions.

Most of our merchandise is produced by manufacturers around the world. Some of these facilities are located in regions that may be affected by natural disasters,
political instability or other conditions that could cause a disruption in trade. Trade restrictions such as increased tariffs or quotas, or both, could also affect the importation of merchandise
generally and increase the cost and reduce the supply of merchandise available to us. Any reduction in merchandise available to us or any increase in its cost due to tariffs, quotas or local issues
that disrupt trade could have a material adverse effect on our results of operations. Although the prices charged by vendors for the merchandise we purchase are all denominated in United States
dollars, a continued decline in the relative value of the United States dollar to foreign currencies could lead to increased merchandise costs, which could negatively affect our competitive position
and our results of operation.

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If our information systems hardware or software fails to function effectively or does not scale to keep pace with our planned growth, our operations
could be disrupted and our financial results could be harmed.

Over the past several years, we have made improvements to our existing hardware and software systems, as well as implemented new systems. If these or any other
information systems and software do not work effectively, this could adversely impact the promptness and accuracy of our transaction processing, financial accounting and reporting and our ability to
manage our business and properly forecast operating results and cash requirements. To manage the anticipated growth of our operations and personnel, we may need to continue to improve our operational
and financial systems, transaction
processing, procedures and controls, and in doing so could incur substantial additional expenses that could impact our financial results.

Our inability or failure to protect our intellectual property or our infringement of other's intellectual property could have a negative impact on our
operating results.

We believe that our trademarks and domain names are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our
trademarks or domain names could diminish the value of the Zumiez brand, our store concept, our private label brands or our goodwill and cause a decline in our net sales. Although we have secured or
are in the process of securing protection for our trademarks and domain names in a number of countries outside of the United States, there are certain countries where we do not currently have or where
we do not currently intend to apply for protection for certain trademarks or at all. Also, the efforts we have taken to protect our trademarks may not be sufficient or effective. Therefore, we may not
be able to prevent other persons from using our trademarks or domain names outside of the United States, which also could adversely affect our business. We are also subject to the risk that we may
infringe on the intellectual property rights of third parties. Any infringement or other intellectual property claim made against us, whether or not it has merit, could be time-consuming,
result in costly litigation, cause product delays or require us to pay royalties or license fees. As a result, any such claim could have a material adverse effect on our operating results.

The effects of war or acts of terrorism could adversely affect our business.

Substantially all of our stores are located in shopping malls. Any threat of terrorist attacks or actual terrorist events, particularly in public areas, could
lead to lower customer traffic in shopping malls. In addition, local authorities or mall management could close shopping malls in response to security concerns. Mall closures, as well as lower
customer traffic due to security concerns, would likely result in decreased sales. Additionally, the escalation of the armed conflicts in the Middle East, or the threat, escalation or commencement of
war or other armed conflict elsewhere, could significantly diminish consumer spending, and result in decreased sales for us. Decreased sales would have a material adverse effect on our business,
financial condition and results of operations.

The outcome of litigation could have a material adverse effect on our business and may result in substantial costs and could divert management's
attention.

We are involved, from time to time, in litigation incidental to our business including complaints filed by investors. This litigation could result in substantial
costs, and could divert management's attention and resources, which could harm our business. Risks associated with legal liability are often difficult to assess or quantify, and their existence and
magnitude can remain unknown for significant periods of
time. While we maintain director and officer insurance, the amount of insurance coverage may not be sufficient to cover a claim and the continued availability of this insurance cannot be assured. As a
result, there can be no assurance that the actual outcome of pending or future litigation will not have a material adverse effect on our results of operations or financial condition.

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Our operations expose us to the risk of litigation which could lead to significant potential liability and costs that could harm our business, financial
condition or results of operations.

We employ a substantial number of full-time and part-time employees, a majority of whom are employed at our store locations. As a result,
we are subject to a large number of federal and state laws and regulations relating to employment. This creates a risk of potential claims that we have violated laws related to discrimination and
harassment, health and safety, wage and hour laws, criminal activity, personal injury and other claims. We are also subject to other types of claims in the ordinary course of our business. Some or all
of these claims may give rise to litigation, which could be time-consuming for our management team, costly and harmful to our business.

In
addition, we are exposed to the risk of class action litigation. The costs of defense and the risk of loss in connection with class action suits are greater than in single-party
litigation claims. Due to the costs of defending against such litigation, the size of judgments that may be awarded against us, and the loss of significant management time devoted to such litigation,
we cannot assure you that such litigation will not disrupt our business or impact our financial results.

Our internet operations subject us to numerous risks that could have an adverse effect on our results of operations.

Although internet sales constitute a small portion of our overall sales, our internet operations subject us to certain risks that could have an adverse effect on
our operational results, including:



In
addition, risks beyond our control, such as governmental regulation of the internet, entry of our vendors in the internet business in competition with us, online security breaches and
general economic conditions specific to the Internet and online commerce could have an adverse effect on our results of operations.

We have incurred and will continue to incur significant expenses as a result of being a public company, which will negatively impact our financial
performance.

We completed our initial public offering in May 2005 and we have incurred and will continue to incur significant legal, accounting, insurance and other expenses
as a result of being a public company. The Sarbanes-Oxley Act of 2002, as well as related rules implemented by the SEC and The NASDAQ Global Select Market, has required changes in corporate governance
practices of public companies. Compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act as discussed in the following risk factor, have
caused and will continue to cause us to incur significant costs and expenses, including legal and accounting costs, and have made and will continue to make some activities more
time-consuming and costly. These laws, rules and regulations have made it more expensive for us to obtain director and officer liability insurance, and we have been required to accept
reduced policy limits and coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers. As a result of the
foregoing, we have incurred and we expect to incur significant legal, accounting, insurance and certain other expenses on an ongoing basis, which will negatively impact our financial performance and
could have a material adverse effect on our results of operations and financial condition.

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Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting and could harm our ability
to manage our expenses.

Reporting obligations as a public company and our anticipated growth are likely to place a considerable strain on our financial and management systems, processes
and controls, as well as on our personnel. In addition, we are required to document and test our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 so that our management can certify as to the effectiveness of our internal controls and our independent registered public accounting firm can render an opinion on the effectiveness of our
internal control over financial reporting on an annual basis. This process requires us to document our internal controls over financial reporting and to potentially make significant changes thereto,
if applicable. As a result, we have incurred and expect to continue to incur substantial expenses to test our financial controls and systems, and we have been and in the future may be required to
improve our financial and managerial controls, reporting systems and procedures, to incur substantial expenses to make such improvements and to hire additional personnel. If our management is ever
unable to certify the effectiveness of our internal controls or if our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal control over
financial reporting, or if material weaknesses in our internal controls are ever identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material
adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our
financial performance on a timely basis, which could cause a decline in our stock price and adversely affect our ability to raise capital.

The security of our databases that contain personal information of our retail customers could be breached, which could subject us to adverse publicity,
litigation, and expenses. In addition, if we are unable to comply with security standards created by the credit card industry, our operations could be adversely affected.

Database privacy, network security, and identity theft are matters of growing public concern. In an attempt to prevent unauthorized access to our network and
databases containing confidential, third-party information, we have installed privacy protection systems, devices, and activity monitoring on our network. Nevertheless, if unauthorized parties gain
access to our networks or databases, they may be able to steal, publish, delete, or modify our private and sensitive third-party information. In such circumstances, we could be held liable to our
customers or other parties or be subject to regulatory or other actions for breaching privacy rules. This could result in costly investigations and litigation, civil or criminal penalties, and adverse
publicity that could adversely affect our financial condition, results of operations, and reputation. Further, if we are unable to comply with the security standards, established by banks and the
credit card industry, we may be subject to fines, restrictions, and expulsion from card acceptance programs, which could adversely affect our retail operations.

The current uncertainty surrounding the United States economy coupled with cyclical economic trends in action sports retailing could have a material
adverse effect on our results of operations.

The action sports retail industry historically has been subject to substantial cyclicality. As economic conditions in the United States change, the trends in
discretionary consumer spending become unpredictable and discretionary consumer spending could be reduced due to uncertainties about the future. When discretionary consumer spending is reduced,
purchases of action sports apparel and related products may decline. A recession in the general economy or continued uncertainties regarding future economic prospects could have a material adverse
effect on our results of operations.

We may fail to meet analyst expectations, which could cause the price of our stock to decline.

Our common stock is traded publicly and various securities analysts follow our financial results and issue reports on us. These reports include information about
our historical financial results as well as

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the
analysts' estimates of our future performance. The analysts' estimates are based upon their own opinions and are often different from our estimates or expectations. If our operating results are
below the estimates or expectations of public market analysts and investors, our stock price could decline. Recently, a securities class action litigation was brought against us and such actions are
frequently brought against other companies following a decline in the market price of their securities. If our stock price is volatile, we may become involved in this type of litigation in the future.
Any litigation could result in substantial costs and a diversion of management's attention and resources that are needed to successfully run our business.

The trading price of our investment in marketable securities may fluctuate

We invest our excess cash in diversified high credit money market accounts, US treasuries, certificates of deposit, municipal bonds and auction rate securities.
The investments have historically been considered very safe investments with very minimal default rates. However, the recent uncertainties in the credit markets have prevented us and other investors
from liquidating holdings of auction rate securities in recent auctions for these securities because the amount of securities submitted for sale has exceeded the amount of purchase orders. We reduced
our holdings of auction rate securities during 2007 through the auction process. As of February 2, 2008, we had $2 million invested in auction rate securities, which are classified as
current, available-for-sale marketable securities on our consolidated balance sheet. If market liquidity issues continue, we may have impairment charges on these investments or
have to reclassify them from short-term assets to long-term assets.

Item 1B.    UNRESOLVED STAFF COMMENTS

None.

Item 2.    PROPERTIES

In early February 2005, we completed our move from the 49,000 square foot combined home office and distribution center that we occupied since 1994 to a new 87,350
square foot combined home office and distribution center, both in Everett, Washington. In October, 2006 we entered into a new lease agreement whereby we agreed to expand our existing lease of 87,350
square feet of home office and distribution center space by 37,350 square feet, bringing the aggregate square footage leased to 124,700 square feet effective January 1, 2007. The new lease
agreement terminated and replaced the original February 2005 lease with the landlord. The new lease agreement provides for an initial lease term of 126 months within which we have an option to
extend the lease term for an additional period of five years.

All
of our stores, encompassing approximately 829,000 total square feet as of February 2, 2008 are occupied under operating leases. The store leases range for a term of five to
ten years and we are generally responsible for payment of property taxes and utilities, common area maintenance and marketing fees.

Item 3.    LEGAL PROCEEDINGS

We are involved from time to time in litigation incidental to our business. We believe that the outcome of current litigation is not expected to have a material
adverse effect on our results of operations or financial condition.

See
Note 8 to the Notes to Consolidated Financial Statements found in Item 8 of Part II of this Form 10-K (listed under "Litigation" under
Commitments and Contingencies).

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter ended February 2, 2008.

21

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PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

a)    Market Information

Our common stock has traded on the NASDAQ Global Select Market under the symbol "ZUMZ". As of February 2, 2008 there were 29,002,852 shares of common stock
issued. We began trading on the NASDAQ Stock Market on May 6, 2005. Accordingly, no information prior to this date is available. The following table sets forth the April 20, 2006 stock
split adjusted high and low last reported sales prices for our common stock on the NASDAQ Global Select Market for the fiscal years ended February 3, 2007 and February 2, 2008.

Fiscal 2006

High

LowFirst Fiscal Quarter (January 29, 2006April 29, 2006)

$
33.02

$
23.65Second Fiscal Quarter (April 30, 2006July 29, 2006)

$
38.85

$
27.00Third Fiscal Quarter (July 30, 2006October 28, 2006)

$
33.53

$
20.00Fourth Fiscal Quarter (October 29, 2006February 3, 2007)

$
36.28

$
26.05


|
|

Fiscal 2007

High

LowFirst Fiscal Quarter (February 4, 2007May 5, 2007)

$
42.00

$
31.57Second Fiscal Quarter (May 6, 2007August 4, 2007)

$
41.80

$
35.77Third Fiscal Quarter (August 5, 2007November 3, 2007)

$
51.25

$
37.96Fourth Fiscal Quarter (November 4, 2007February 2, 2008)

$
39.45

$
15.59


b)    Holders of the Corporation's Capital Stock

We had approximately 20 shareholders of record as of March 3, 2008.

c)     Dividends

No cash dividends have been declared on our common stock to date nor have any decisions been made to pay a dividend in the foreseeable future. Payment of
dividends is evaluated on a periodic basis and if a dividend were paid, it would be subject to covenants of our lending facility, which may have the effect of restricting our ability to pay dividends.

d)    Recent Sales of Unregistered Securities

None

e)     Issuer Purchases of Equity Securities

None

22

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Item 6.    SELECTED FINANCIAL INFORMATION

The following selected consolidated financial information has been derived from our audited Consolidated Financial Statements. The data should be read in
conjunction with our Consolidated Financial Statements and the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.

Each
fiscal year consists of four 13-week quarters, with an extra week added to the fourth quarter every five or six years. Our fiscal years ended January 31, 2004,
January 29, 2005, January 28, 2006 and February 2, 2008 each consisted of 52 weeks. Our fiscal year ended February 3, 2007 consisted of 53 weeks. In this
document, we refer to the fiscal year ended January 29, 2005 as "fiscal 2004", to the fiscal year ended January 28, 2006 as "fiscal 2005", to the fiscal year ended February 3,
2007 as "fiscal 2006" and fiscal year ended February 2, 2008 as "fiscal 2007".

The
selected statement of operations data for the fiscal year ended January 28, 2006, the fiscal year ended February 3, 2007 and the fiscal year ended February 2,
2008 and the selected balance sheet data as of February 3, 2007 and February 2, 2008 are derived from our audited consolidated financial statements, which are included elsewhere in this
document. The selected consolidated statement of operations data for the fiscal years ended January 31, 2004 and January 29, 2005 are derived from our audited financial statements not
included in this document.

|                                             |  | Fiscal Year Ended
|-------------------------------------------- |  | -----------------
|
|
|Statement of Operations Data:                |  |                  
|Net sales                                    |  | $                
|Cost of goods sold                           |  |                  
|                                             |  |                  
|Gross profit                                 |  |                  
|Selling, general and administrative expenses |  |                  
|                                             |  |                  
|Operating profit                             |  |                  
|Interest income (expense)                    |  |                  
|Other income (expense)                       |  |                  
|                                             |  |                  
|Earnings before income taxes                 |  |                  
|Provision for income taxes                   |  |                  
|                                             |  |                  
|Net income                                   |  | $                
|                                             |  |                  
|Net income per share                         |  |                  
|Basic (1)                                    |  | $                
|                                             |  |                  
|Diluted (1)                                  |  | $                
|                                             |  |                  
|Weighted average shares outstanding          |  |                  
|Basic (1)                                    |  |                  
|Diluted (1)                                  |  |                  

---

23

---



|                                                 |  | Fiscal Year Ended
|------------------------------------------------ |  | -----------------
|
|
|Balance Sheet Data:                              |  |                  
|Cash, cash equivalents and marketable securities |  | $                
|Working capital                                  |  |                  
|Total assets                                     |  |                  
|Total long term obligations                      |  |                  
|Total shareholders' equity                       |  |                  

|
|

|                                                      |  | Fiscal Year Ended |        
|----------------------------------------------------- |  | ----------------- | -------
|
|
|Other Financial Data:                                 |  |                   |        
|Gross margin percentage (1)                           |  |                   | 30.9   
|Capital expenditures                                  |  | $                 | 6,467  
|Depreciation and Amortization                         |  | $                 | 4,185  
|Store Data:                                           |  |                   |        
|Number of stores open at end of period                |  |                   | 113    
|Comparable store sales increase (2)(3)                |  |                   | 4.3    
|Net sales per store (3)(4)                            |  | $                 | 1,131  
|Total square footage at end of period (5)             |  |                   | 288,784
|Average square footage per store at end of period (6) |  |                   | 2,533  
|Net sales per square foot (3)(7)                      |  | $                 | 448    

---

24

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our
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.

Overview

We are a mall based specialty retailer of action sports related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of
February 2, 2008 we operated 285 stores primarily located in shopping malls, giving us a presence in 27 states. We were founded in 1978 by Thomas D. Campion, our Chairman. Our current President
and Chief Executive Officer, Richard M. Brooks, joined us as Chief Financial Officer in 1993. Our stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing
a lifestyle centered on activities that include skateboarding, surfing, snowboarding, BMX and motocross. We support the action sports lifestyle and promote our brand through a multi-faceted marketing
approach that is designed to integrate our brand image with our customers' activities and interests. This approach, combined with our differentiated merchandising strategy, store design, comprehensive
training programs and passionate employees, allows us to provide an experience for our customers that we believe is consistent with their attitudes, fashion tastes and identities and is otherwise
unavailable in most malls.

Our
net sales increased from approximately $101.4 million in fiscal 2002 to approximately $381.4 million in fiscal 2007, a compound annual growth rate of 30.3%. Net sales
for fiscal 2007 increased by $83.2 million, or 27.9%, over net sales for fiscal 2006. Over the past five fiscal years ended February 2, 2008 we increased our store base from 99 to 285
and our comparable store net sales increased an average of 10.1% per fiscal year. As of February 2, 2008 we operated 285 stores that averaged approximately 2,900 square feet per store.

We
intend to expand our presence as a leading action sports lifestyle retailer by opening new stores and continuing to generate sales growth through improved store level productivity. We
have successfully and consistently implemented our store concept across a variety of mall classifications and geographic locations, and our strategy is to continue to open stores in both new and
existing markets. We plan to open 57 new stores in fiscal 2008 and to continue to open a significant number of new stores in future years. Through our merchandising and marketing efforts, we have
generally been successful in increasing the level of net sales in our existing stores and we will seek to continue such increases going forward.

We
believe that we have developed an economically compelling store model. Our new stores opened during fiscal 2006, including 19 stores, net, acquired from Fast Forward, generated
average net sales of approximately $1.2 million during their first full year of operations. On average, our net investment to open these stores, excluding the Fast Forward stores, was
approximately $314,000, which includes capital expenditures, net of landlord contributions. However, net sales and other operating results for stores that we open or have opened subsequent to the end
of fiscal 2006, as well as our net investment to open those stores, may differ substantially from net sales and other operating results and our net investment for stores we opened in fiscal 2006. See
"BusinessStores." We opened 50 new stores in fiscal 2007 with an average net investment of approximately $330,000 which includes capital expenditures, net of landlord contributions.
However, our net investment to open new stores and net sales generated by new stores vary significantly and depend on a number of factors, including the geographic location, type of mall and size of
those stores. Accordingly, net sales and other operating

25

---



results
for stores that we open or have opened subsequent to the end of fiscal 2007, as well as our net investment to open those stores, may differ substantially from net sales and other operating
results and our net investment for the stores we opened in fiscal 2007.

In
any given period, our overall gross margin may be impacted by changes in the margins of the various products we offer as well as changes in the relative mix of revenues from the
different categories of apparel and hardgood products that we sell. Over the past five fiscal years, our annual gross margin as a percentage of our net sales has ranged from a low of 30.9% to a high
of 36.3%. We achieved these results while continuing to adjust our merchandise mix to respond to changing consumer preferences and market conditions. A number of other factors may also positively or
negatively impact our gross margins and results of operations, including, but not limited to:



One
of our ongoing goals is to leverage our expenses, particularly general corporate overhead and fixed costs such as non-variable occupancy costs, through increases in both
comparable store sales and total net sales. At the store level, our strategy is to increase comparable store sales in an effort to improve operating results by spreading our store level fixed costs
over increased net sales per comparable store. We also seek to increase our total net sales, both through increases in comparable store sales and by opening new stores, in an effort to better leverage
our corporate level expenses and decrease our general and administrative expenses as a percentage of our net sales.

General

Net sales constitute gross sales net of returns. Net sales include our in-store sales and our internet sales and, accordingly, information herein with
respect to comparable store sales, net sales per store and net sales per square foot includes our internet sales. For fiscal 2002 through fiscal 2007, internet sales represented approximately 1% of
our annual net sales. We record the sale of gift cards as a current liability and recognize a sale when a customer redeems a gift card. The amount of the gift card liability is determined taking into
account our estimate of the portion of gift cards that will not be redeemed or recovered ("gift card breakage"). Gift Card Breakage is recognized as revenue 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, and stores are included in our comparable store sales beginning on the first anniversary of their first day of operation. Changes
in our comparable store sales between two periods are based on net sales of stores which were in operation during both of the two periods being compared and, if a store is included in the calculation
of comparable store sales for only a portion of one of the two periods being compared, then that store is included in the

26

---



calculation
for only the comparable portion of the other period. When additional square footage is added to a store that is included in comparable store sales, that store remains in comparable store
sales. 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 the cost of merchandise sold to customers, inbound shipping costs, distribution costs, depreciation on leasehold improvements at our distribution center,
buying and merchandising costs and store occupancy costs. This may not be comparable to the way in which our competitors or other retailers compute their cost of goods sold.

In
early February 2005 we completed our move from the 49,000 square foot combined home office and distribution center we had leased since 1994 to a newly leased 87,350 square foot
combined home office and distribution center. In October, 2006 we entered into a new lease agreement whereby we agreed to expand our existing lease of 87,350 square feet of home office and
distribution center space by 37,350 square feet, bringing the aggregate square footage leased to 124,700 square feet. The effective date of the new lease was January 1, 2007. The new Lease
Agreement terminated and replaced the original February 2005 lease with the Landlord. The new Lease Agreement provides for an initial lease term of 126 months within which we have an option to
extend the lease term for an additional period of five years. As a result, we experienced a slight increase in our distribution and warehousing costs, which are included as a component of our costs of
goods sold, in fiscal 2006.

Selling,
general and administrative expenses consist primarily of store personnel wages and benefits, administrative staff and infrastructure expenses, store supplies, depreciation on
leasehold improvements at our home office and stores, facility expenses, and training, advertising and marketing costs. Credit card fees, insurance, public company expenses, Sarbanes Oxley compliance
expenses, stock based compensation and other miscellaneous operating costs are also included in selling, general and administrative expenses. This may not be comparable to the way in which our
competitors or other retailers compute their selling, general and administrative expenses. We expect that our selling, general and administrative expenses will, as described below, increase in future
periods due in part to increased expenses associated with opening new stores.

We
recognized stock-based compensation expense of approximately $4.6 million in fiscal 2007 and $2.1 million in fiscal 2006. As a result of Financial Accounting Standards
Board (FASB) Statement No. 123(R),Share-Based Payment("SFAS No. 123(R)"), which became effective for us beginning with the first quarter
of fiscal 2006, share-based payments granted in future periods will increase compensation expense that would otherwise have been recognized in accordance with Accounting Principles Board Opinion
No. 25,Accounting For Stock Issued To Employees, and outstanding unvested options will result in additional compensation expense that otherwise
would only have been recognized on a pro-forma basis. For more information regarding the implementation of SFAS 123(R), see "Critical Accounting Policies and Estimates" below.

Our
success is largely dependent upon our ability to anticipate, identify and respond to the fashion tastes of our customers and to provide merchandise that satisfies customer demands.
Any inability to provide appropriate merchandise in sufficient quantities in a timely manner could have a material adverse effect on our business, operating results and financial condition.

We
have and will continue to incur significant legal, accounting, insurance and other expenses as a result of being a public company, which will adversely affect our results of
operations, perhaps materially. Among other things, we expect that continued compliance with the Sarbanes-Oxley Act of 2002 and related rules and regulations will result in significant legal and
accounting costs in the future. See Item 1A "Risk Factors".

27

---



We
may take steps, such as increased promotional activities, to increase the percentage of net sales of private label merchandise in the future, although there can be no assurance that
we will be able to achieve increases in private label merchandise sales as a percentage of net sales. Because our private label merchandise generally carries higher gross margins than other
merchandise, our failure to anticipate, identify and react in a timely manner to fashion trends with our private label merchandise, particularly if the percentage of net sales derived from private
label merchandise increases, may have a material adverse effect on our comparable store sales, financial condition and results of operations. See Item 1A "Risk Factors".

Results of Operations

The following table presents, for the periods indicated, selected items in the consolidated statements of operations as a percent of net sales:

Fical Year EndedJanuary 28,
2006

February 3,
2007

February 2,
2008Net sales

100.0
%
100.0
%
100.0
%Cost of goods sold

64.7
%
63.7
%
64.1
%Gross margin

35.3
%
36.3
%
35.9
%Selling, general and administrative expenses

25.5
%
25.4
%
25.7
%Operating profit

9.8
%
10.9
%
10.2
%Interest income (expense)

0.3
%
0.4
%
0.4
%Earnings before income taxes

10.1
%
11.3
%
10.6
%Provision for income taxes

3.8
%
4.3
%
4.0
%Net income

6.3
%
7.0
%
6.6
%


Fiscal (2007) Year Ended February 2, 2008 Compared with Fiscal (2006) Year Ended February 3, 2007

Net Sales

Net sales increased to $381.4 million for fiscal 2007 from $298.2 million for fiscal 2006, an increase of $83.2 million, or 27.9%.

Comparable
store net sales increased by 9.2% in the 52 week period ended February 2, 2008 compared to the 52 week period ended February 3, 2007. This increase
in comparable store sales was primarily due to higher net sales of men's and women's apparel, and skate hardgoods. For information as to how we define comparable stores, see "General" above.

The
increase in total net sales was due to an increase in comparable store net sales of approximately $23.6 million and an increase in net sales from non-comparable
stores of approximately $59.6 million. The increase in non-comparable store net sales was primarily due to the opening of 50 new stores in fiscal 2007.

Gross Profit

Gross profit for fiscal 2007 was $137.0 million compared with $108.2 million for fiscal 2006, an increase of $28.8 million, or 26.6%. As a
percentage of net sales, gross profit decreased to 35.9% in fiscal 2007 from 36.3% in fiscal 2006. The decrease in gross profit as a percentage of net sales was due primarily to higher shrinkage,
store occupancy costs, and distribution costs partially offset by higher product margins due to improved product management.

28

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Selling, General and Administrative Expenses

Selling, general and administrative, or "SG&A," expenses in fiscal 2007 were $98.0 million compared with $75.8 million in fiscal 2006, an increase
of $22.2 million, or 29.4%. This increase was primarily the result of costs associated with operating new stores as well as increases in infrastructure and administrative staff to support our
growth. As a percentage of net sales, SG&A expenses increased to 25.7% in fiscal 2007 from 25.4% in fiscal 2006. The increase in SG&A expenses as a percentage of net sales was primarily attributable
to the increased stock based compensation of $2.5 million and increased depreciation expense of $3.9 million, partially offset by lower growth in store wages and benefits relative to the
growth in net sales and lower incentive compensation expense.

Operating Profit

As a result of the above factors, operating profit increased to $38.9 million for fiscal 2007, compared with $32.4 million in fiscal 2006 an
increase of $6.5 million or 20.0%. As a percentage of net sales, operating profit was 10.2% in fiscal 2007 compared with 10.9% in fiscal 2006.

Provision for Income Taxes

Provision for income taxes was $15.3 million for fiscal 2007 compared with $12.8 million for fiscal 2006. The effective tax rate was 37.7% for
fiscal 2007 and 37.9% for fiscal 2006. The lower effective tax rate was due to higher interest income from tax exempt municipal bonds.

During
fiscal 2007 the Company adopted the provisions of FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement No. 109."

Net Income

Net income increased to $25.3 million, in fiscal 2007 from $20.9 million in fiscal 2006 an increase of $4.4 million, or 21.4%. As a
percentage of net sales, net income was 6.6% in fiscal 2007 compared with 7.0% in fiscal 2006.

Fiscal (2006) Year Ended February 3, 2007 Compared with Fiscal (2005) Year Ended January 28, 2006

Net Sales

Net sales increased to $298.2 million for fiscal 2006 from $205.6 million for fiscal 2005, an increase of $92.6 million, or 45.0%.

Comparable
store net sales increased by 13.0% in the 52 week period ended February 3, 2007 compared to the 52 week period ended January 28, 2006. This
increase was primarily due to higher net sales of men's apparel, accessories and footwear. For information as to how we define comparable stores, see "General" above.

The
increase in total net sales was due to an increase in comparable store net sales of approximately $27.2 million and an increase in net sales from non-comparable
stores of approximately $65.4 million. The increase in non-comparable store net sales was primarily due to the opening of 42 new stores in fiscal 2006 and the acquisition of 20
stores from Fast Forward.

Gross Profit

Gross profit for fiscal 2006 was $108.2 million compared with $72.5 million for fiscal 2005, an increase of $35.7 million, or 49.2%. As a
percentage of net sales, gross profit increased to 36.3% in fiscal 2006 from 35.3% in fiscal 2005. The increase in gross profit as a percentage of net sales was due primarily to the increase in net
sales for fiscal 2006 compared to fiscal 2005, which allowed us to leverage certain fixed costs, over greater total net sales, improved pricing from some of our vendors

29

---



due
to our larger merchandise purchases and reduced freight costs, distribution costs and buying costs as a percentage of net sales.

Selling, General and Administrative Expenses

Selling, general and administrative, or "SG&A," expenses in fiscal 2006 were $75.8 million compared with $52.5 million in fiscal 2005, an increase
of $23.3 million, or 44.4%. This increase was primarily the result of costs associated with operating new stores, increases in infrastructure and administrative staff to support our growth and
the costs of being a public company, including Sarbanes-Oxley costs, accounting fees, legal fees, and other related expenses. As a percentage of net sales, SG&A expenses decreased to 25.4% in fiscal
2006 from 25.5% in fiscal 2005. The decrease in SG&A expenses as a percentage of net sales was primarily a result of leveraging fixed operating costs offset by an increase in store payroll for new
stores of $9.5 million, additional depreciation of $3.0 million, Sarbanes-Oxley costs of $1.0 million, increased stock based compensation expense of $1.7 million and to a
lesser extent, additional infrastructure and administrative staff costs to support our growth.

Operating Profit

As a result of the above factors, operating profit increased to $32.4 million for fiscal 2006, compared with $20.0 million in fiscal 2005 an
increase of $12.4 million or 62.0%. As a percentage of net sales, operating profit was 10.9% in fiscal 2006 compared with 9.8% in fiscal 2005.

Provision for Income Taxes

Provision for income taxes was $12.8 million for fiscal 2006 compared with $7.8 million for fiscal 2005. The effective tax rate was 37.9% for fiscal
2006 and 2005.

Net Income

Net income increased to $20.9 million in fiscal 2006 compared to $12.9 million in fiscal 2005, an increase of $8.0 million or 62.3%. As a
percentage of net sales, net income was 7.0% in fiscal 2006 compared with 6.3% in fiscal 2005.

Seasonality and Quarterly Results

As is the case with many retailers of apparel and related merchandise, our business is subject to seasonal influences. As a result, we have historically
experienced and expect to continue to experience seasonal and quarterly fluctuations in our net sales and operating results. Our net sales and operating results are typically lower in the first and
second quarters of our fiscal year, while the winter holiday and back-to-school periods historically have accounted for the largest percentage of our annual net sales.
Quarterly results of operations may also fluctuate significantly as a result of a variety of factors, including the timing of store openings and the relative proportion of our new stores to mature
stores, fashion trends and changes in consumer preferences, calendar shifts of holiday or seasonal periods, changes in merchandise mix, timing of promotional events, general economic conditions,
competition and weather conditions.

The
following table sets forth selected unaudited quarterly consolidated statements of operations data for the periods indicated. The unaudited quarterly information has been prepared on
a basis consistent with the audited consolidated financial statements included elsewhere herein and includes all adjustments, that we consider necessary for a fair presentation of the information
shown. This information should be read in conjunction with the audited consolidated financial statements and the notes thereto appearing elsewhere herein. The operating results for any fiscal quarter
are not indicative

30

---



of
the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future.

|                                    |  | Fiscal Year Ended February 3, 2007 |        | Fiscal Year Ended February 2, 2008 |  
|----------------------------------- |  | ---------------------------------- | ------ | ---------------------------------- | -
|
|
|Net sales                           |  | $                                  | 47,785 |                                    | $
|Gross profit (1)                    |  | $                                  | 15,204 |                                    | $
|Operating profit                    |  | $                                  | 1,470  |                                    | $
|Net income                          |  | $                                  | 1,109  |                                    | $
|Basic net income per share          |  | $                                  | 0.04   |                                    | $
|Dilute net income per share         |  | $                                  | 0.04   |                                    | $
|Number of stores open end of period |  |                                    | 179    |                                    |  
|Comparable store sales increase (2) |  |                                    | 19.7   | %                                  |  

---

Liquidity and Capital Resources

Our primary capital requirements are for capital investments, inventory, store remodeling, store fixtures and ongoing infrastructure improvements such as
technology enhancements and distribution capabilities. Historically, our main sources of liquidity have been cash flows from operations and borrowings under our revolving credit facility.

In
May 2005, we completed an initial public offering of our common stock in which we sold 3,750,000 shares and certain selling shareholders sold 3,437,500 shares. We received net
proceeds from the offering of approximately $29.2 million, after payment of underwriting discounts and commissions and offering expenses. Since the completion of the offering, we have used all
of the net proceeds of the offering to pay down balances on our line of credit, to fund capital expenditures associated with opening new stores, and to fund the "Fast Forward" acquisition. We did not
receive any of the proceeds from the sale of shares of common stock by the selling shareholders.

The
significant components of our working capital are inventory and liquid assets such as cash, marketable securities and receivables, specifically credit card receivables, reduced by
short-term debt, accounts payable and accrued expenses. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within
several days of the related sale, while we typically have payment terms with our vendors.

At
the end of fiscal 2007 we held two Auction Rate Securities totaling $2.0 million or 3.1% of our investment portfolio. We currently do not intend to hold these securities beyond
their auction date and will try to sell these securities when their auction dates come up in March and May, respectively. However, the recent uncertainties in the credit markets have prevented us and
other investors from liquidating holdings of auction rate securities in recent auctions for these securities because the amount

31

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of
securities submitted for sale has exceeded the amount of purchase orders. If the auctions fail, we plan to hold these securities until the next auction date and the securities coupon rate will
reset to a prescribed "failure" rate. Unsuccessful auctions could result in our holding securities beyond their next scheduled auction reset dates if a secondary market does not develop; therefore,
limiting the short-term liquidity of these investments.

Our
capital requirements include construction and fixture costs related to the opening of new stores and for maintenance and remodeling expenditures for existing stores. Future capital
requirements will depend on many factors, including the pace of new store openings, the availability of suitable locations for new stores, and the nature of arrangements negotiated with landlords. In
that regard, our net investment to open a new store has varied significantly in the past due to a number of factors, including the geographic location and size of the new store, and is likely to vary
significantly in the future. During fiscal 2008, we expect to spend approximately $34.0 million to $35.0 million on capital expenditures, a majority of which will relate to leasehold
improvements and fixtures for the 57 new stores we plan to open in fiscal 2008, and a smaller amount will relate to equipment, systems and improvements for our distribution center and support
infrastructure. However, there can be no assurance that the number of stores that we actually open in fiscal 2008 will not be different from the number of stores we plan to open, or that actual fiscal
2008 capital expenditures will not differ from this expected amount.

We
expect cash flows from operations and available borrowings under our revolving credit facility will be sufficient to meet our foreseeable cash requirements for operations and planned
capital expenditures for at least the next twelve months. Beyond this time frame, if cash flows from operations, and borrowings under our revolving credit facility are not sufficient to meet our
capital requirements, then we will be required to obtain additional equity or debt financing in the future. There can be no assurance that equity or debt financing will be available to us when we need
it or, if available, that the terms will be satisfactory to us and not dilutive to our then-current shareholders.

Net
cash provided by operating activities for fiscal 2007 was $34.3 million compared to $34.2 million for fiscal 2006. The change was primarily due to an increase in net
income, offset by an increase in inventory needed to support 50 new stores and a decrease in trade accounts payable due to the timing of inventory receipts and associated payment in the fourth
quarter. In addition, fiscal 2006 cash flow provided by operating activities benefited due to parts of Washington being declared a federal disaster area due to severe weather in the fourth quarter of
fiscal 2006. In accordance with the Presidential Disaster Area tax relief, we deferred our federal income tax payment of $2.5 million from January 2007 to February 2007. This positively
impacted fiscal 2006's cash flow provided by operations and negatively impacted fiscal 2007's cash flow provided by operations.

Net
cash used in investing activities was $51.2 million in fiscal 2007 primarily related to capital expenditures for new store openings and existing store renovations and net
purchases of marketable securities of $20.5 million. Net cash used in investing activities was $44.4 million in fiscal 2006, primarily related to capital expenditures for new store
openings and existing store renovations, the acquisition of the Fast Forward stores for $16.5 million and net purchases of marketable securities of $5.7 million and $54.7 million
in fiscal 2005, primarily related to net purchases of marketable securities of $38.3 million and capital expenditures for new store openings and existing store renovations.

Net
cash provided by financing activities in the fiscal 2007 was $20.7 million, primarily related to proceeds from stock option exercise and associated tax benefits. Net cash used
in financing activities in fiscal 2006 was $13.6 million, primarily related to proceeds from stock option exercise and the associated tax benefit and short term use of bank funds. Net cash used
in financing activities in fiscal 2005 was $34.3 million, primarily related to proceeds from our initial public offering on May 5, 2005.

We
have a credit agreement with Wells Fargo HSBC Trade Bank, N.A. The credit agreement provides us with a secured revolving credit facility until August 30, 2009 of up to
$25.0 million. This

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facility
replaces our $20.0 million secured revolving credit facility with Bank of America, N.A., which terminated effective August 31, 2006. The secured revolving credit facility
provides for the issuance of standby commercial letters of credit in an amount not to exceed $5.0 million outstanding at any time and with a term not to exceed 365 days, although the
amount of borrowings available at any time under our secured revolving credit facility is reduced by the amount of standby letters of credit outstanding at that time. There were no outstanding
borrowings under the secured revolving credit facility at February 2, 2008 or February 3, 2007. The Company had open letters of credit outstanding under our secured revolving credit
facility of $0.5 million at February 2, 2008 and approximately $0.7 million at February 3, 2007. The secured revolving credit facility bears interest at floating rates
based on the lower of the prime rate (6.00% at February 2, 2008) minus 0.50% or the LIBOR rate (4.22% at February 2, 2008), plus 1% for advances over $500,000 for a minimum of
30 days and a maximum of 180 days. The credit agreement contains a number of restrictions and covenants that generally limit our ability to, among other things, (1) incur
additional debt, (2) undergo a change in ownership and (3) enter into certain transactions. The credit agreement also contains financial covenants that require us to meet certain
specified financial tests and ratios, including, minimum net income after taxes, maximum total liabilities divided by tangible net worth and minimum quick asset ratio. All of our personal property,
including, among other things, our inventory, equipment and fixtures, has been pledged to secure our obligations under the credit agreement. We must also provide financial information and statements
to our lender. We were in compliance with all such covenants at February 2, 2008.

Contractual Obligations and Commercial Commitments

There was no material changes outside the ordinary course of business in our contractual obligations during the fiscal year ended February 2, 2008. Our
operating lease obligations are not recognized as
liabilities in the financial statements. The following table summarizes the total amount of future payments due under certain of our contractual obligations and the amount of those payments due in
future periods as of February 3, 2007 (in thousands):

|Contractual Obligations     |  | Total |         | Less than
1 Year |   | 1-3 Years |  | 3-5 Years |        | More than
5 Years
|--------------------------- |  | ----- | ------- | ---------------- | - | --------- |  | --------- | ------ | -----------------
|Operating Lease Obligations |  | $     | 221,569 |                  | $ | 27,876    |  | $         | 55,381 |                  
|Purchase Obligations        |  |       | 59,548  |                  |   | 59,548    |  |           |       |                  
|Letters of Credit           |  |       | 500     |                  |   | 500       |  |           |       |                  
|                            |  |       |         |                  |   |           |  |           |        |                  
|                            |  | $     | 281,617 |                  | $ | 87,924    |  | $         | 55,381 |                  
|                            |  |       |         |                  |   |           |  |           |        |                  

We
occupy our retail stores and combined home office and distribution center under operating leases generally with terms of five to ten years. Some of our leases have early cancellation
clauses, which permit the lease to be terminated by us if certain sales levels are not met in specific periods. Some leases contain renewal options for periods ranging from one to five years under
substantially the same terms and conditions as the original leases. In addition to future minimum lease payments, substantially all of our store leases provide for additional rental payments (or
"percentage rent") if sales at the respective stores exceed specified levels, as well as the payment of common area maintenance charges and real estate taxes. Amounts in the above table do not include
percentage rent, common area maintenance charges or real estate taxes. Most of our lease agreements have defined escalating rent provisions, which we have straight-lined over the term of the lease,
including any lease renewals deemed to be probable. For certain locations, we receive cash tenant allowances and we have reported these amounts as a deferred liability which is amortized to rent
expense over the term of the lease, including any lease renewals deemed to be probable. Rent expense, including common area maintenance and other occupancy costs, was $22.2 million,
$31.9 million and $43.5 million for fiscal 2005, 2006, and 2007, respectively. At February 2, 2008, we had outstanding purchase orders to acquire

33

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merchandise
from vendors for approximately $59.5 million. We have an option to cancel these commitments with no notice prior to shipment. At February 2, 2008, we had approximately
$0.5 million of letters of credit outstanding.

Off-Balance Sheet Obligations

Our only off-balance sheet contractual obligations and commercial commitments as of February 2, 2008 related to operating lease obligations and
letters of credit. We have excluded these items from our balance sheet in accordance with generally accepted accounting principles "GAAP". We presently do not have any non-cancelable
purchase commitments. At February 2, 2008 we had outstanding purchase orders to acquire merchandise from vendors for approximately $59.5 million. These purchases are expected to be
financed by cash flows from operations and borrowings under our revolving credit facility. We have an option to cancel these commitments with no notice prior to shipment. At February 2, 2008 we
had approximately $0.5 million of letters of credit outstanding under our revolving credit facility.

Impact of Inflation

We do not believe that inflation has had a material impact on our net sales or operating results for the past three fiscal years. There can be no assurance that
our business will not be affected by inflation in the future.

Quantitative and Qualitative Disclosures About Market Risk

See discussion in Item 7A"Quantitative and Qualitative Disclosures About Market Risk."

Critical Accounting Policies and Estimates

In preparing financial statements in accordance with GAAP, we are required to make estimates and assumptions that have an impact on the assets, liabilities,
revenue and expense amounts reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. We believe,
given current facts and circumstances that our estimates and assumptions are reasonable, adhere to GAAP, and are consistently applied. Inherent in the nature of an estimate or assumption is the fact
that actual results may differ from estimates and estimates may vary as new facts and circumstances arise. In preparing the consolidated financial statements, we make routine estimates and judgments
in determining the net realizable value of accounts receivable, inventory, fixed assets, prepaid assets, goodwill and certain liabilities. We believe our most critical accounting estimates and
assumptions are in the following areas:

Revenue recognition and sales returns reserve.We recognize revenue upon purchase by customers at our retail store locations
or upon shipment for orders placed through our website as both title and risk of loss have transferred. We offer a return policy of generally 30 days and we accrue for estimated sales returns
based on our historical sales returns results. The amounts of these sales returns reserves vary during the year due to the seasonality of our business. Actual sales returns could be higher or lower
than our estimated sales returns due to customer buying patterns that could differ from historical trends.

Valuation of merchandise inventories.We carry our merchandise inventories at the lower of cost or market. Merchandise
inventories may include items that have been written down to our best estimate of their net realizable value. Our decisions to write-down our merchandise inventories are based on our
current rate of sale, the age of the inventory and other factors. Actual final sales prices to our customers may be higher or lower than our estimated sales prices and could result in a fluctuation in
gross margin. Historically, any additional write-downs have not been significant and we do not adjust the historical carrying value of merchandise inventories upwards based on actual sales experience.

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Leasehold improvements and equipment.We review the carrying value of our leasehold improvements and equipment for impairment
whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of the impairment loss is based on the fair value of the asset or group
of assets. Generally, fair value will be determined using valuation techniques, such as the expected present value of future cash flows. The actual economic lives of these assets may be different than
our estimated useful lives, thereby resulting in a different carrying value. These evaluations could result in a change in the depreciable lives of those assets and therefore our depreciation expense
in future periods.

Impairment of Long-Lived Assets.We review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment recognized is measured by comparing projected individual store
discounted cash flow to the asset carrying values. Declines in projected store cash flow could result in the impairment of assets.

Lease Accounting.The Company occupies its retail stores and combined home office and distribution center under operating
leases generally with terms of five to ten years. Some of these leases have early cancellation clauses, which permit the lease to be terminated if certain sales levels are not met in specific periods.
Some leases contain renewal options for periods ranging from one to five years under substantially the same terms and conditions as the original leases. Most of the store leases require payment of a
specified minimum rent, plus a contingent rent based on a percentage of the store's net sales in excess of a specified threshold. Most of the lease agreements have defined escalating rent provisions,
which are straight-lined over the term of the related lease, including any lease renewals deemed to be probable. The Company straight-lines and recognizes its rent expense over the term of the lease,
plus the construction period prior to occupancy of the retail location, using a mid-month convention. For certain locations, the Company receives cash tenant allowances and has reported
these amounts as a deferred liability which is amortized to rent expense over the term of the lease.

Accounting for Income Taxes.As part of the process of preparing the financial statements, income taxes are estimated for
each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items
for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. The likelihood that deferred tax assets will be recovered
from future taxable income is assessed, recognizing that future taxable income may give rise to new deferred tax assets. To the extent that future recovery is not likely, a valuation allowance would
be
established. To the extent that a valuation allowance is established or increased, an expense will be included within the tax provision in the income statement.

Significant
management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred
tax assets. Based on our history of operating earnings, no valuation allowance has been recorded as of February 2, 2008. In the event that actual results differ from these estimates, or these
estimates are adjusted in future periods, a valuation allowance may need to be established, which could impact our financial position and results of operations. As described in Note 2 to the
financial statements, "Recent accounting pronouncements" the Company adopted the provisions of FASB Interpretation No. 48,"Accounting for Uncertainty in Income
Taxes"("FIN 48"), on February 4, 2007. The Company's policy is to recognize penalties and interest related to unrecognized tax benefits in income tax expense.
The adoption of FIN 48 did not have a material effect on the Company's consolidated financial position or results of operations for the year ended February 2, 2008.

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Provisions
for income taxes are based on numerous factors that are subject to audit by the Internal Revenue Service and the tax authorities in the various jurisdictions in which we do
business.

Stock-based compensation.Effective January 29, 2006, we adopted the fair value method of accounting for stock-based
compensation arrangements in accordance with FASB Statement No. 123(R), Share-Based Payment ("SFAS No. 123(R)"), under provisions of Staff Accounting Bulletin N0. 107 ("SAB 107")
using the modified prospective method of transition. Under the provisions of SFAS No. 123(R), the estimated fair value of share-based awards granted under the 2005 Stock Incentive Plan is
recognized as compensation expense over the vesting period. Using the modified prospective method, compensation expense is recognized beginning with the effective date of adoption of SFAS
No. 123(R) for all share-based issuances (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and after our initial public
offering on May 5, 2005. Prior to January 29, 2006, we accounted for stock-based employee compensation plans using the intrinsic value method of accounting in accordance with Accounting
Principles Board Opinion No. 25,"Accounting for Stock Issued to Employees"("APB 25"), and its related interpretations. Under the
provisions of APB 25, no compensation expense was recognized when stock options were granted with exercise prices equal to or greater than market value on the date of grant.

We
recorded $4.6 million of total stock-based compensation expense for the year ended February 2, 2008 of which $0.8 million was attributable to the Board of
Directors as required by the provisions of SFAS No. 123(R). The stock-based compensation expense is calculated on an accelerated method over the vesting periods of the related options. This
charge had no impact on our reported cash flows

At
February 2, 2008 there was approximately $9.2 million of total unrecognized compensation cost related to unvested stock options of which approximately
$0.5 million was attributable to the Board of Directors. This cost is expected to be recognized on a weighted-average basis over a period of approximately eight years.

We
account for unvested stock-based employee compensation arrangements granted prior to our initial public offering on the intrinsic value method as allowed by SFAS 123(R).

Business Acquisition.In June 2006, we completed the acquisition of 100% of the ownership of Action Concepts Fast
Forward, Ltd. (a limited partnership) ("Fast Forward"), an apparel and accessory retail sales company which operated 20 stores (17 in Texas, 2 in Oklahoma and 1 in California). The transaction
was accounted for under the purchase method of accounting and, accordingly, the purchased assets and assumed liabilities were recorded at their estimated fair values. The Company incurred transaction
expenses of approximately $663,000 related to the employee severance and transition expense of the acquisition. As of February 2, 2008, this amount has been paid in full.

Recently Issued Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statement No. 109."FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN 48, on February 4, 2007. The
adoption of FIN 48 did not have a material effect on the Company's consolidated financial position or results of operations for the year ended February 2, 2008. Interest recognized in
accordance with this Interpretation may be classified in the financial statements as either income taxes or interest expense, based on the accounting policy election of the enterprise. The Company has
elected to classify any interest expense recognized under this Interpretation as income taxes.

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In
September 2006 the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, however the FASB has delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008
for
nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently occurring basis.

The
Company does not expect the adoption of SFAS No. 157 to have a material effect on the Company's consolidated financial position or results of operations.

In
February 2007, the FASB issued SFAS No. 159,"The Fair Value Option for Financial Assets and Financial Liabilities"including an
amendment of FASB Statement No. 115, which provides entities with an option to report selected financial assets and liabilities at fair value. SFAS No.159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This statement is effective as of
the beginning of the first fiscal year that begins after November 15, 2007. We are currently evaluating the impact that SFAS No. 159 will have on our consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),"Business Combinations" ("SFAS 141(R)"), which replaces SFAS
No. 141,"Business Combinations"("SFAS 141"). SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business
combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of
significant aspects. Acquisition costs will generally be expensed as incurred; non-controlling interests will be valued at fair value at the acquisition date; in-process
research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.
SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS No. 109, "Accounting for
Income Taxes," such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of
SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. We are currently evaluating the effects, if any, that SFAS 141(R) may have on our
consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements." SFAS
No. 160 amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and requires (i) classification of non-controlling interests, commonly referred
to as minority interests, within stockholders' equity, (ii) net income to include the net income attributable to the non-controlling interest and (iii) enhanced disclosure of
activity related to non-controlling interests. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of SFAS
No. 160 on our consolidated financial statements.

In
December 2007, the Securities and Exchange Commission issued SAB No. 110, "Share-Based Payment"("SAB 110").
SAB 110 amends SAB 107, and allows for the continued use, under certain
circumstances, of the "simplified method" in developing an estimate of the expected term on stock options accounted for under SFAS 123R. SAB 110 is effective for stock options granted
after December 31, 2007. We are currently evaluating the impact of the new provisions of SAB 110 for stock option awards granted in the future.

37

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Risk Factors, Issues and Uncertainties

Please refer to the information set forth under Item 1A above for a discussion of risk factors, issues and uncertainties that our business faces.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are susceptible to market value fluctuations with regard to our short-term investments. However, due to the relatively short maturity period of
those investments and our intention and ability to hold those investments until maturity, the risk of material market value fluctuations is not expected to be significant.

During
different times of the year, due to the seasonality of our business, we have borrowed under our revolving credit facility. To the extent we borrow under our revolving credit
facility, which bears interests at floating rates based either on the prime rate or LIBOR, we are exposed to market risk related to changes in interest rates. At February 2, 2008 we had no
borrowings outstanding under our credit facility. We are not a party to any derivative financial instruments. Fluctuations in interest rates did not have a material effect on the results of operations
in 2007. We do not believe that potential interest rate fluctuations will materially effect the fiscal 2008 results of operations.

Item 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this item is set forth in "Index to the Consolidated Financial Statements", under "Part IV Item 15" of this report.

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Securities Exchange Act Rule 13a-15(e)). Based on this evaluation, our CEO and CFO concluded that, as of February 2, 2008 our disclosure controls
and procedures were effective.

Changes in Internal Control Over Financial Reporting.There has been no change in our internal control over financial
reporting (as defined in Securities Exchange Act Rule 13a-15(f)) during the quarter ended February 2, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. The effectiveness of Zumiez Inc. internal control over financial reporting as of February 2, 2008 has been audited by Moss
Adams LLP, the Company's independent registered public accounting firm, as stated in their report which appears herein.

Management's
Report on Internal Control Over Financial Reporting is included in this Form 10-K under Part III, Item 15, "Exhibits and Consolidated
Financial Statements."

Item 9B.    OTHER INFORMATION

None.

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PART III

Item 10.    DIRECTORS EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding our directors and nominees for directorship is presented under the headings "Election of Directors," in our definitive proxy statement for
use in connection with our 2008 Annual Meeting of Shareholders (the "Proxy Statement") that will be filed within 120 days after our fiscal year ended February 2, 2008 and is incorporated
herein by this reference thereto. Information concerning our executive officers is set forth under the heading "Executive Officers" in our Proxy Statement, and is incorporated herein by reference
thereto. Information regarding compliance with Section 16(a) of the Exchange Act, our code of conduct and ethics and certain information related to the Company's Audit Committee and Governance
Committee is set forth under the heading "Corporate Governance" in our Proxy Statement, and is incorporated herein by reference thereto.

Item 11.                                    EXECUTIVE
COMPENSATION

Information regarding the compensation of our directors and executive officers and certain information related to the Company's Compensation Committee is set
forth under the headings "Executive Compensation," "Director Compensation," "Compensation Discussion and Analysis," "Compensation Committee Report" and "Compensation Committee Interlocks and Insider
Participation" in our Proxy Statement, and is incorporated herein by this reference thereto.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

Information with respect to security ownership of certain beneficial owners and management is set forth under the headings "Security Ownership of Certain
Beneficial Owners and Management" and "Equity Compensation Plan Information" in our Proxy Statement, and is incorporated herein by this reference thereto.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information regarding certain relationships and related transactions and director independence is presented under the heading "Corporate Governance" in our Proxy
Statement, and is incorporated herein by this reference thereto.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accounting fees and services is presented under the heading "Fees Paid to Independent Registered Public Accounting Firm for
Fiscal Year 2007 and 2006" in our Proxy Statement, and is incorporated herein by this reference thereto.

PART IV

Item 15.    EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENTS.



39

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MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Zumiez Inc. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

This
process includes policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements, and can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Furthermore, because of changes in conditions, the effectiveness of internal control may vary over time.

The
Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial
reporting as of February 2, 2008. Management's assessment was based on criteria described in theInternal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on that assessment, the Company's management concluded that the
Company's internal control over financial reporting was effective as of February 2, 2008.

The
effectiveness of Zumiez Inc. internal control over financial reporting as of February 2, 2008 has been audited by Moss Adams LLP, the Company's independent
registered public accounting firm, as stated in their report which appears herein.

40

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | ZUMIEZ INC.                   
| |  | ------------------------------
| |  | /s/ RICHARD M. BROOKSSignature
| |  | By:                           
| |  | /s/ TREVOR S. LANGSignature   
| |  | By:                           

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

|/s/ THOMAS D. CAMPIONSignature
Thomas D. Campion, Chairman           |  | 3/25/08Date
|-------------------------------------------------------------------- |  | -----------
|/s/ DAVID DEMATTEISignature
David DeMattei, Director                 |  | 3/25/08Date
|/s/ GERALD F. RYLESSignature
Gerald F. Ryles, Director               |  | 3/25/08Date
|/s/ WILLIAM M. BARNUM, JR.Signature
William M. Barnum, Jr., Director |  | 3/25/08Date
|/s/ JIM WEBERSignature
Jim Weber, Director                           |  | 3/25/08Date
|/s/ MATTHEW L. HYDESignature
Matthew L. Hyde, Director               |  | 3/25/08Date

41

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of
Zumiez Inc.

We
have audited Zumiez Inc.'s internal control over financial reporting as of February 2, 2008, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission ("the COSO criteria"). The Company's management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control. Our audit also includes performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Zumiez Inc. maintained effective internal control over financial reporting as of February 2, 2008, in all material respects, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Zumiez Inc. as of
February 2, 2008 and February 3, 2007, and the related consolidated statements of operations, shareholders' equity, and cash flows for the period ended February 2, 2008 and
February 3, 2007, and our report dated March 24, 2008, expresses an unqualified opinion thereon.

Moss
Adams, LLP

Seattle,
Washington
March 24, 2008

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTSYears ended January 28, 2006, February 3, 2007 and February 2, 2008

|Reports of Independent Registered Public Accounting Firms  |  | 44
|---------------------------------------------------------- |  | --
|Consolidated Balance Sheets                                |  | 46
|Consolidated Statements of Operations                      |  | 47
|Consolidated Statements of Changes in Shareholders' Equity |  | 48
|Consolidated Statements of Cash Flows                      |  | 49
|Notes to Consolidated Financial Statements                 |  | 50

43

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Shareholders of
Zumiez Inc.

We
have audited the accompanying consolidated balance sheets of Zumiez Inc. as of February 2, 2008 and February 3, 2007 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the periods ended February 2, 2008 and February 3, 2007. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Zumiez Inc. as of February 2,
2008 and February 3, 2007 and the results of its operations and its cash flows for the periods ended February 2, 2008 and February 3, 2007, in conformity with accounting
principles generally accepted in the United States of America.

As
discussed in Notes 2 and 6 to the consolidated financial statements, effective January 29, 2006, Zumiez Inc. changed its method of accounting for share-based
payment arrangements to conform to Statement of Financial Accounting Standards No. 123(R),Share-Based Payment.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Zumiez Inc.'s internal control over
financial reporting as of February 2, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 24, 2008 expressed an unqualified opinion.

/s/
MOSS ADAMS LLP

Seattle,
Washington
March 24, 2008

44

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
Board of Directors and Shareholders of Zumiez Inc.:

In
our opinion, the consolidated statements of operations, consolidated statements of changes in shareholders' equity and of cash flows of Zumiez Inc. and its subsidiary for the
year ended January 28, 2006, present fairly, in all material respects, the results of operations and cash flows of Zumiez Inc. and its subsidiary for the year ended January 28,
2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits. We conducted our audits, of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/
PricewaterhouseCoopers LLP

Seattle,
Washington
March 21, 2006, except for the stock split and revision to previously issued statements of cash flow described in Note 1, as which the date is March 25, 2008.

45

---





ZUMIEZ INC.  CONSOLIDATED BALANCE SHEETS  (In thousands, except share amounts)

|                                                                                                                                                                                      |                                            | February 3, 2007 |        | February 2, 2008
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------- | ------ | ----------------
|Assets                                                                                                                                                                                |                                            |                  |        |                 
|Current assets                                                                                                                                                                        |                                            |                  |        |                 
|Cash and cash equivalents                                                                                                                                                             |                                            | $                | 8,161  |                 
|Marketable securities                                                                                                                                                                 |                                            |                  | 43,816 |                 
|Receivables                                                                                                                                                                           |                                            |                  | 5,223  |                 
|Inventory                                                                                                                                                                             |                                            |                  | 42,157 |                 
|Prepaid expenses and other                                                                                                                                                            |                                            |                  | 3,593  |                 
|Deferred tax assets                                                                                                                                                                   |                                            |                  | 1,551  |                 
|                                                                                                                                                                                      |                                            |                  |        |                 
|                                                                                                                                                                                      | Total current assets                       |                  |        | 104,501         
|Leasehold improvements and equipment, net                                                                                                                                             |                                            |                  | 49,889 |                 
|Goodwill                                                                                                                                                                              |                                            |                  | 12,904 |                 
|Deferred tax assets                                                                                                                                                                   |                                            |                  |       |                 
|                                                                                                                                                                                      |                                            |                  |        |                 
|                                                                                                                                                                                      | Total long-term assets                     |                  |        | 62,793          
|                                                                                                                                                                                      | Total assets                               |                  | $      | 167,294         
|                                                                                                                                                                                      |                                            |                  |        |                 
|Liabilities and Shareholders' Equity                                                                                                                                                  |                                            |                  |        |                 
|Current liabilities                                                                                                                                                                   |                                            |                  |        |                 
|Trade accounts payable                                                                                                                                                                |                                            | $                | 24,164 |                 
|Book overdraft                                                                                                                                                                        |                                            |                  | 6,083  |                 
|Accrued payroll and payroll taxes                                                                                                                                                     |                                            |                  | 4,784  |                 
|Income taxes payable                                                                                                                                                                  |                                            |                  | 6,598  |                 
|Current portion of deferred rent and tenant allowances                                                                                                                                |                                            |                  | 1,377  |                 
|Other accrued liabilities                                                                                                                                                             |                                            |                  | 6,566  |                 
|                                                                                                                                                                                      |                                            |                  |        |                 
|                                                                                                                                                                                      | Total current liabilities                  |                  |        | 49,572          
|Long-term deferred rent and tenant allowances, less current portion                                                                                                                   |                                            |                  | 12,069 |                 
|Deferred tax liabilities                                                                                                                                                              |                                            |                  | 841    |                 
|                                                                                                                                                                                      |                                            |                  |        |                 
|                                                                                                                                                                                      | Total long-term liabilities                |                  |        | 12,910          
|                                                                                                                                                                                      | Total liabilities                          |                  |        | 62,482          
|                                                                                                                                                                                      |                                            |                  |        |                 
|Commitments and contingencies (Note 8)                                                                                                                                                |                                            |                  |        |                 
|Shareholders' equity                                                                                                                                                                  |                                            |                  |        |                 
|Preferred stock, no par value, 40,000,000 shares authorized; none issued and outstanding                                                                                              |                                            |                  |       |                 
|Common stock, no par value, 100,000,000 shares authorized; 27,880,512 shares issued and outstanding at February 3, 2007, 29,002,852 shares issued and outstanding at February 2, 2008 |                                            |                  | 45,311 |                 
|Accumulated other comprehensive income (loss)                                                                                                                                         |                                            |                  | (14    | )               
|Retained earnings                                                                                                                                                                     |                                            |                  | 59,515 |                 
|                                                                                                                                                                                      |                                            |                  |        |                 
|                                                                                                                                                                                      | Total shareholders' equity                 |                  |        | 104,812         
|                                                                                                                                                                                      | Total liabilities and shareholders' equity |                  | $      | 167,294         
|                                                                                                                                                                                      |                                            |                  |        |                 

See
acccompanying notes to consolidated financial statements

46

---





ZUMIEZ INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except share and per share amounts)

|                                                                   |         | Fiscal Year Ended
|------------------------------------------------------------------ | ------- | -----------------
|
|Net sales                                                          |         | $                
|Cost of goods sold                                                 |         |                  
|                                                                   |         |                  
|Gross profit                                                       |         |                  
|Selling, general and administrative expenses                       |         |                  
|                                                                   |         |                  
|Operating profit                                                   |         |                  
|Interest income, net                                               |         |                  
|Other income (expense)                                             |         |                  
|                                                                   |         |                  
|Earnings before income taxes                                       |         |                  
|Provision for income taxes                                         |         |                  
|                                                                   |         |                  
|Net income                                                         |         | $                
|                                                                   |         |                  
|Basic net income per share                                         |         | $                
|                                                                   |         |                  
|Diluted net income per share                                       |         | $                
|                                                                   |         |                  
|Weighted average shares used in computation of earnings per share: |         |                  
|                                                                   | Basic   |                  
|                                                                   | Diluted |                  

See
accompanying notes to consolidated financial statements

47

---





ZUMIEZ INC.  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  (In thousands)

|                                                                   |  | Common Stock |  |   |        | Other
Comprehensive
Income
(Loss) |   |      |   |   |     |   |  
|------------------------------------------------------------------ |  | ------------ |  | - | ------ | --------------------------------- | - | ---- | - | - | --- | - | -
|
|
|Balance at January 29, 2005                                        |  | 22,610       |  | $ | 44     |                                   | $ | 95   |   |   |    |   | $
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  
|Common shares issued through initial public offering               |  | 3,750        |  |   | 29,191 |                                   |   |     |   |   |    |   |  
|Exercise of common stock options, including tax benefit of $4,457  |  | 899          |  |   | 5,535  |                                   |   |     |   |   |    |   |  
|Stock based compensation                                           |  |             |  |   |       |                                   |   | 165  |   |   |    |   |  
|Cost incurred on behalf of parent                                  |  |             |  |   |       |                                   |   |     |   |   |    |   |  
|Parent receivable forgiven                                         |  |             |  |   |       |                                   |   |     |   |   |    |   |  
|Unrealized (losses), net                                           |  |             |  |   |       |                                   |   |     |   |   | (5  | ) |  
|Net income                                                         |  |             |  |   |       |                                   |   |     |   |   |    |   |  
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  
|Balance at January 28, 2006                                        |  | 27,259       |  |   | 34,770 |                                   |   | 260  |   |   | (5  | ) |  
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  
|Exercise of common stock options, including tax benefit of $6,822  |  | 622          |  |   | 8,228  |                                   |   |     |   |   |    |   |  
|Stock based compensation                                           |  |             |  |   | 2,313  |                                   |   | (260 | ) |   |    |   |  
|Unrealized (losses), net                                           |  |             |  |   |        |                                   |   |     |   |   | (9  | ) |  
|Net income                                                         |  |             |  |   |        |                                   |   |     |   |   |    |   |  
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  
|Balance at February 3, 2007                                        |  | 27,881       |  |   | 45,311 |                                   |   |     |   |   | (14 | ) |  
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  
|Exercise of common stock options, including tax benefit of $16,527 |  | 1,122        |  |   | 19,417 |                                   |   |     |   |   |    |   |  
|Stock based compensation                                           |  |             |  |   | 4,569  |                                   |   |     |   |   |    |   |  
|Unrealized gains, net                                              |  |             |  |   |       |                                   |   |     |   |   | 478 |   |  
|Net income                                                         |  |             |  |   |       |                                   |   |     |   |   |    |   |  
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  
|Balance at February 2, 2008                                        |  | 29,003       |  | $ | 69,297 |                                   | $ |     |   | $ | 464 |   | $
|                                                                   |  |              |  |   |        |                                   |   |      |   |   |     |   |  

See accompanying notes to consolidated financial statements

48

---





ZUMIEZ INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)

|                                                                                  |                                                                            | Fiscal Year Ended                   |        
|--------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------- | -------
|
|Cash flows from operating activities:                                             |                                                                            |                                     |        
|Net income                                                                        |                                                                            | $                                   | 12,851 
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                            |                                     |        
|Depreciation and amortization                                                     |                                                                            |                                     | 7,535  
|Deferred tax expense                                                              |                                                                            |                                     | (56    
|Stock-based compensation expense                                                  |                                                                            |                                     | 165    
|Loss on disposal of assets                                                        |                                                                            |                                     | 33     
|(Gain) Loss from sales of marketable securities, net                              |                                                                            |                                     |       
|Excess tax benefit from stock options                                             |                                                                            |                                     |       
|                                                                                  | Changes in operating assets and liabilities:                               |                                     |        
|                                                                                  |                                                                            | Receivables                         |        
|                                                                                  |                                                                            | Inventory                           |        
|                                                                                  |                                                                            | Prepaid expenses and other          |        
|                                                                                  |                                                                            | Trade accounts payable              |        
|                                                                                  |                                                                            | Accrued payroll and payroll taxes   |        
|                                                                                  |                                                                            | Income taxes payable                |        
|                                                                                  |                                                                            | Other accrued liabilities           |        
|                                                                                  |                                                                            | Deferred rent and tenant allowances |        
|                                                                                  |                                                                            |                                     |        
|Net cash provided by operating activities                                         |                                                                            |                                     | 24,153 
|                                                                                  |                                                                            |                                     |        
|Cash flows from investing activities:                                             |                                                                            |                                     |        
|Additions to leasehold improvements and equipment                                 |                                                                            |                                     | (16,453
|Acquisitions, net of cash acquired                                                |                                                                            |                                     |       
|Purchases of marketable securities                                                |                                                                            |                                     | (72,651
|Sales and maturities of marketable securities                                     |                                                                            |                                     | 34,365 
|                                                                                  |                                                                            |                                     |        
|Net cash used in investing activities                                             |                                                                            |                                     | (54,739
|                                                                                  |                                                                            |                                     |        
|Cash flows from financing activities:                                             |                                                                            |                                     |        
|Change in book overdraft                                                          |                                                                            |                                     | (429   
|Borrowings on revolving credit facility                                           |                                                                            |                                     | 19,750 
|Payments on revolving credit facility                                             |                                                                            |                                     | (19,750
|Proceeds from exercise of stock options                                           |                                                                            |                                     |       
|Proceeds from sale of stock                                                       |                                                                            |                                     | 34,726 
|Excess tax benefit from stock options                                             |                                                                            |                                     |       
|                                                                                  |                                                                            |                                     |        
|Net cash provided by financing activities                                         |                                                                            |                                     | 34,297 
|                                                                                  |                                                                            |                                     |        
|Net increase in cash and cash equivalents                                         |                                                                            |                                     | 3,711  
|Cash and cash equivalents, beginning of period                                    |                                                                            |                                     | 1,026  
|                                                                                  |                                                                            |                                     |        
|Cash and cash equivalents, end of period                                          |                                                                            | $                                   | 4,737  
|                                                                                  |                                                                            |                                     |        
|Supplemental disclosure on cash flow information:                                 |                                                                            |                                     |        
|                                                                                  | Cash paid during the period for interest                                   |                                     | $      
|                                                                                  | Cash paid during the period for income taxes                               |                                     |        
|                                                                                  | Non-cash operating activitydispositon of gift card breakage liability     |                                     |        
|                                                                                  | Non-cash investing activityacquisition costs in other accrued liabilities |                                     |        

See accompanying notes to consolidated financial statements

49

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature and Ownership of Business and Basis of Presentation

Nature of BusinessZumiez Inc. (the "Company") is a leading specialty retailer of action sports
related apparel, footwear, equipment and accessories operating under the Zumiez brand name. As of February 2, 2008 the Company operated 285 stores primarily located in shopping malls, giving
the Company a presence in 27 states. The Company's stores cater to young men and women between the ages of 12 and 24 who seek popular brands representing a lifestyle centered on activities that
include skateboarding, surfing, snowboarding, bicycle motocross (or "BMX") and motocross. The Company supports the action sports lifestyle and promotes its brand through a multi-faceted marketing
approach that is designed to integrate its brand image with its customers' activities and interests. In addition, the Company operates a website which sells merchandise online and provides content and
a community for its target customers. The Company, based in Everett, WA, was formed in August 1978 and operates within one reportable segment.

Fiscal YearThe Company uses a fiscal calendar widely used by the retail industry that results in a fiscal year consisting of
a 52- or 53- week period ending on the Saturday closest to January 31. Each fiscal year consists of four 13-week quarters, with an extra week added to the
fourth quarter every five or six years. Fiscal 2005 and fiscal 2007 were
52-week periods ended January 28, 2006 and February 2, 2008 respectively. Fiscal 2006 was a 53-week period ended February 3, 2007.

Stock SplitOn March 15, 2006 the Company's Board of Directors approved a two for one stock split of the Company's
common stock that was effected by a share dividend and became effective April 19, 2006. All reference to shares in the consolidated financial statements and the accompanying notes, including
but not limited to the number of shares and per share amounts, unless otherwise noted, have been adjusted to reflect the stock split on a retroactive basis. Previously awarded stock options in the
Company's common stock have been retroactively adjusted to reflect the stock split.

ReincorporationOn April 29, 2005 the Company reincorporated in the State of Washington from the State of Delaware. In
connection with the reincorporation, the Company filed new articles of incorporation and adopted new bylaws. The new articles of incorporation changed the Company's common stock from $0.01 par value
per share to no par value per share and increased the Company's authorized capital stock.

Initial Public OfferingIn May 2005 the Company completed an initial public offering of its common stock in which the Company
sold 3,750,000 shares and the Company's selling shareholders sold 3,437,500 shares. Net proceeds from the offering received by the Company totaled approximately $29.2 million, after payment of
underwriters' commissions and offering expenses. The Company did not receive any of the proceeds from the sale of shares of its common stock by the selling shareholders. Prior to this initial public
offering, the Company was a majority owned subsidiary of Zumiez Holdings LLC (the "Parent"), a holding company with no operating activities. The financial position and operating results of the
Parent are not included in the Company's financial statements included in this annual report. The Parent was dissolved in connection with the Company's initial public offering.

Secondary OfferingIn November 2005 a secondary offering of shares of the Company's common stock by certain of its
shareholders was completed. The offering consisted of 5,462,500 shares of common stock, including 712,500 shares that were subject to the underwriters' over-allotment option. All of the
shares were sold by shareholders of the Company and, as a result, the Company did not receive any of the proceeds from the offering.

Basis of PresentationThe accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP").

50

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Nature and Ownership of Business and Basis of Presentation (Continued)

The
consolidated financial statements include the accounts of Zumiez Inc. and its subsidiary, Zumiez Nevada, LLC. All significant intercompany transactions and balances are eliminated in
consolidation.

Revision to Previously Issued Statements of Cash FlowsThe Company has historically classified tenant allowances received from
landlords as a reduction of leasehold improvements and equipment in the cash flows from investing activities section of the consolidated statements of cash flows. The appropriate classification is to
include tenant allowances in deferred rent, which is included in net cash provided by operating activities. For the fiscal years ended February 3, 2007 and January 28, 2006, we have
corrected the classification of tenant allowances in the consolidated statement of cash flows. The effect of this adjustment is to increase cash used in investing activities and to increase net cash
flow provided by operating activities by $4.3 million and $3.1 million for fiscal 2006 and fiscal 2005, respectively. There was no impact on the net increase in cash and cash equivalents
on the consolidated statement of cash flows. The Company has determined these adjustments are not material and has corrected the classification of tenant allowances in the statements of cash flows for
these fiscal years.

2. Summary of Significant Accounting Policies

Use of EstimatesThe preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. These estimates can also affect supplemental
information disclosed by the Company, including information about contingencies, risk, and financial condition. In preparing the financial statements, the Company makes routine estimates and judgments
in determining the net realizable value of accounts receivable, inventory, fixed assets, and accrued liabilities. Some of the more significant estimates include the allowance for sales returns, the
reserve for inventory valuation estimates, medical insurance reserve and the expected useful lives of fixed assets. Actual results could differ from those estimates.

Concentration of RiskThe Company maintains its cash and cash equivalents in accounts with two major financial institution in
the United States of America, in the form of demand deposits, certificates of deposits and money market accounts. Deposits in this bank may exceed the amounts of federal deposit insurance provided on
such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company's accounts receivable are primarily derived from credit card purchases from
customers and are typically settled within one to two days.

Cash and Cash EquivalentsThe Company considers all highly liquid investments with original maturity of three months or less
when purchased to be cash equivalents.

Restricted CashAt February 2, 2008 and at February 3, 2007 the Company had restricted cash of $250,000 held in
escrow related to the Fast Forward acquisition.

Marketable SecuritiesAt February 2, 2008 and February 3, 2007, marketable securities, classified as available
for sale, were $64.6 million and $43.8 million, respectively, and consisted of municipal and U.S. agency debt instruments with original maturities over 90 days. As of
February 2, 2008, we had $2 million invested in auction rate securities, which are classified as current, available-for-sale marketable securities on our
consolidated balance sheet. We reduced our holdings of auction rate securities during 2007 through the auction process.

51

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Auction
rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at
pre-determined calendar intervals. This mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities or liquidate their holdings
by selling their securities at par value. We generally invest in these securities for short periods of time as part of our cash management program. However, the recent uncertainties in the credit
markets have prevented us and other investors from liquidating holdings of auction rate securities in recent auctions for these securities because the amount of securities submitted for sale has
exceeded the amount of purchase orders. Should the auctions fail, we anticipate we have the ability to hold these securities until the liquidity in the market improves. We believe the interest rate on
these investments will increase based on current interest rates. These investments are fully collateralized by the United States government and are insured against loss of principal and interest by a
bond insurer whose AAA ratings are under review. If the credit ratings of the issuer, the bond insurers or the collateral deteriorate, we may adjust the carrying value of these investments. Although
we are uncertain as to when the liquidity issues relating to these investments will improve, we consider these issues to be only temporary. Any temporary decline, if sustained, would be recognized in
other comprehensive income. It is possible that declines in fair value may occur. We continue to monitor the market for auction rate securities and consider its impact (if any) on the fair market
value of the investments. If the current market conditions deteriorate further the Company may be required to record unrealized losses in other comprehensive income or impairment charges in 2008.

ReceivablesAt February 2, 2008 and February 3, 2007, receivables include, tenant allowances receivable credit
cards receivable, interest receivable and other. The Company does not extend credit to its customers except through third-party credit cards.

Fiscal Year EndedFebruary 3,
2007

February 2,
2008Tenant allowances receivable

$
2,531

$
1,334Credit cards receivable


1,551


2,108Interest receivable


374


557Employee receivables


110


257Other receivables


657


519$
5,223

$
4,775


Merchandise InventoriesMerchandise inventories are valued at the lower of cost or market. The cost of merchandise inventories
are based upon an average cost methodology. Merchandise inventories may include items that have been written down to the Company's best estimate of their net realizable value. The Company's decisions
to write-down its merchandise inventories are based on its current rate of sale, the age of the inventory and other factors. Actual final sales prices to customers may be higher or lower
than the Company's estimated sales prices and could result in a fluctuation in gross profit. Historically, any additional write-downs have not been significant to the Company. We have reserved for
inventory shrinkage as of February 2, 2008 and February 3, 2007 in the amounts of approximately $2.2 million and $1.9 million, respectively.

Leasehold Improvements and EquipmentLeasehold improvements and equipment are stated at cost less accumulated depreciation.
Amortization of leasehold improvements is computed on the straight-line method over the lesser of an asset's estimated useful life or the lease term (generally

52

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

5-10 years),
whichever is shorter. Depreciation on furniture, fixtures and equipment is computed on the straight-line method over 5 years. Maintenance and repairs
are expensed as incurred. The cost and related accumulated depreciation or amortization of assets sold or otherwise disposed of is removed from the accounts and the related gain or loss is reported in
the consolidated statement of operations.

Valuation of Long-Lived AssetsThe Company reviews the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Measurement of the impairment loss is based on the fair value of the
asset, or group of assets. The company determined that there was no impairment loss for the year ended February 2, 2008. Generally, fair value will be determined using accepted valuation
techniques, such as the present value of expected future cash flows. Asset retirements were not material for fiscal 2007.

Fair Value of Financial InstrumentsStatement of Financial Accounting Standards No. 107 "Disclosures about Fair Value of Financial Instrument"("SFAS
No. 107"), requires management to disclose the estimated fair value of certain
assets and liabilities as financial instruments. Financial instruments are generally defined by SFAS No. 107 as cash, evidence of ownership interest in an entity, or a contractual obligation
that both conveys to one entity a right to receive cash or other financial instruments from another entity and imposes on the other entity the obligation to deliver cash or other financial instruments
to the first entity. At February 3, 2007 and February 2, 2008 the carrying amounts of cash and cash equivalents, receivables, payables and other accrued liabilities approximated fair
value because of the short maturity of these financial instruments. The carrying value of marketable securities, approximate the fair value because these financial instruments have floating interest
rates which reflect current market conditions. Contractual maturities of investments underlying our available-for-sale securities at February 2, 2008 included
$2.0 million in auction rate securities. Based on current market conditions, it is possible that auctions related to these securities may be unsuccessful in the near term. Unsuccessful auctions
could result in our holding securities beyond their next scheduled auction reset dates if a secondary market does not develop; therefore, limiting the short-term liquidity of these
investments.

Deferred Rent, Rent Expense and Tenant AllowancesThe Company occupies its retail stores and combined home office and
distribution center under operating leases generally with terms of five to ten years. Some of these leases have early cancellation clauses, which permit the lease to be terminated if certain sales
levels are not met in specific periods. Some leases contain renewal options for periods ranging from one to five years under substantially the same terms and conditions as the original leases. Most of
the store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the store's net sales in excess of a specified threshold. Most of the lease agreements
have defined escalating rent provisions, which are straight-lined over the term of the related lease, including any lease renewals deemed to be probable. The Company straight-lines and
recognizes its rent expense over the term of the lease, plus the construction period prior to occupancy of the retail location, using a mid-month convention. For certain locations, the
Company receives cash tenant allowances and has reported these amounts as a deferred liability which is amortized to rent expense over the term of the lease. Also included in rent expense are payments
of real estate taxes, insurance and certain common area and maintenance costs in addition to the future minimum operating lease payments. All other pre-opening costs are expensed as
incurred.

GoodwillIn accordance with Statement of Financial Accounting Standards No. 142, "Accounting
for Goodwill and Other Intangible Assets"("SFAS No. 142"), the Company does not amortize goodwill derived from purchase business combinations. The Company evaluates the
recoverability of goodwill

53

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

annually
based on a two-step impairment test. The first step compares the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds
fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. Additional impairment assessments may be performed on an interim basis if the Company
encounters events or changes in circumstances that would indicate that, more likely than not, the book value of goodwill has been impaired. There was no impairment of goodwill in the 2007 and 2006
fiscal years.

Other LiabilitiesAt February 2, 2008 and February 3, 2007 other liabilities consisted of the following:

Fiscal Year EndedFebruary 3,
2007

February 2,
2008Accrued Payables

$
1,357

$
3,475Gift cards payable


1,954


3,033Accrued excise tax


1,400


1,793Other current liabilities


1,855


759$
6,566

$
9,060


Income TaxesThe provision for income taxes includes both current and deferred tax expenses. Current tax expense is the amount
associated with current operating results. The Company follows the liability method of accounting for income taxes, which requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary difference between the carrying amounts and the tax bases of the assets and liabilities. Valuation allowances may be established when necessary to reduce deferred
tax assets to the amount expected to be realized.

Comprehensive IncomeComprehensive income represents all changes in equity during a period except those resulting from
investments by and distributions to shareholders. Comprehensive income for fiscal 2007, 2006 and 2005 was $25.8 million, $20.8 million and $12.8 million, respectively comprised of net
income plus or (minus) net unrealized gains or (losses) on our available-for-sale securities.

Revenue RecognitionSales are recognized upon purchase at the Company's retail store locations or upon shipment for orders
placed through the Company's website as both title and risk of loss have transferred. Taxes collected from the Company's customers are and have been recorded on a net basis. The Company records the
sale of gift cards as a current liability and recognizes revenue when a customer redeems a gift card. The amount of the gift card liability is determined taking into account our estimate of the
portion of gift cards that will not be redeemed or recovered ("gift card breakage"). Gift card breakage is recognized as revenue after 24 months, at which time the likelihood of redemption is
considered remote based on our historical redemption data. The Company reports shipping revenues and costs within sales and cost of goods sold, respectively. The Company accrues for estimated sales
returns by customers based on historical sales return results. The allowance for sales returns as of February 2, 2008, February 3, 2007 and January 28, 2006 was approximately
$279,000, $275,000 and $185,000, respectively. The Company offers a return policy of generally 30 days. The Company has the right to assess gift card dormancy fees in certain states, but has
historically not done so.

54

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

The Company entered into an agreement with an unrelated third party that assumed the unredeemed liability for gift cards that had not yet reached the statutory
term for unclaimed property. As a result of the agreement, certain third-party claims on unredeemed gift cards for the State of Delaware have been removed, thus allowing the company to recognize
additional revenue of approximately $303,000 in fiscal 2007.

The
Company operates exclusively in the retail apparel industry in which the Company distributes, designs and produces clothing, accessories and related products catering to the
teenage/young adult demographic through primarily mall-based retail stores. The Company has identified one operating segment as defined by Statement of Financial Accounting Standards
No. 131,"Disclosures about Segments of an Enterprise and Related Information"("SFAS No. 131"). The company accounts for its business
operation as one reportable segment based on the similar nature of products sold, production, merchandising and distribution processes involved, target customers, and economic characteristics.

The
Company presents its merchandise assortment as a percentage of net sales for the following categories: "Men's", which includes men's apparel; "Women's", which includes women's
apparel; and "Accessories and Other", which includes all other merchandise (e.g., hardgoods, accessories, footwear, etc.). The percentage of net sales for each of the aforementioned categories
for fiscal 2005, fiscal 2006 and fiscal 2007 was as follows:

Fiscal Year EndedJanuary 28,
2006

February 3,
2007

February 2,
2008Men's

30.0
%
31.9
%
32.4
%Women's

17.0
%
15.4
%
15.4
%Accessories and Other

53.0
%
52.7
%
52.2
%Total

100.0
%
100.0
%
100.0
%


Cost of Goods SoldCost of goods sold consists of the cost of merchandise sold to customers, inbound shipping costs,
distribution costs, depreciation on leasehold improvements at the distribution center, buying and merchandising costs and store occupancy costs. This may not be comparable to the way in which the
Company's competitors or other retailers compute their cost of goods sold. In fiscal 2005 and 2006 the Company reported shipping costs on internet sales in selling, general and administrative expense.
During 2007 the Company reclassified these costs to costs of goods sold. The company reclassified approximately $349,000 and $236,000 for fiscal 2006 and 2005, respectively, from selling, general and
administrative expense to cost of goods sold to conform to 2007 presentation. The Company does receive insignificant amounts of cash consideration from vendors which have been reported as a reduction
of expenses or inventory on hand as the amounts are reimbursements of specific, incremental and identifiable costs of selling the vendors' products.

With
respect to the freight component of our internet sales, we arrange and pay the freight for our customers and bill them for this service. Such amounts billed are included in revenue
and the related freight cost is charged to cost of goods sold. For fiscal years 2007, 2006, and 2005, the Company incurred shipping costs related to internet sales for approximately $534,000, $349,000
and $236,000 respectively.

Selling, General and Administrative ExpenseSelling, general and administrative expenses consist primarily of store personnel
wages and benefits, administrative staff and infrastructure expenses, store supplies, depreciation on leasehold improvements at the home office and stores, facility expenses, and

55

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

training,
advertising and marketing costs. Credit card fees, insurance and other miscellaneous operating costs are also included in selling, general and administrative expenses. This may not be
comparable to the way in which the Company's competitors or other retailers compute their selling, general and administrative expenses.

AdvertisingThe Company expenses advertising costs as incurred. Advertising expenses are net of sponsorships. Advertising
expense was approximately $250,000, $651,000 and $748,000 in fiscal 2005, 2006 and 2007, respectively.

Stock-Based CompensationEffective January 29, 2006, the Company adopted the fair value method of accounting for
stock-based compensation arrangements in accordance with Financial Accounting Standards Board ("FASB") Statement No. 123(R),Share-Based Payment("SFAS No. 123(R)"), using the modified prospective method of transition. Under the provisions of SFAS No. 123(R), the estimated fair value of share-based awards granted under the 2005
Stock Incentive Plan are recognized as compensation expense over the vesting period. Using the modified prospective method, compensation expense is recognized beginning with the effective date of
adoption of SFAS No. 123(R) for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and after the
Company's initial public offering on May 5, 2005. Prior to January 29, 2006, the Company accounted for stock-based employee compensation plans using the intrinsic value method of
accounting in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and its related interpretations. Under the provisions of
APB 25, no compensation expense was recognized when stock options were granted with exercise prices equal to or greater than market value on the date of grant. The fair value of stock option
grants are estimated on the date of grant using the Black-Scholes option pricing method with the following weighted-average assumptions used for grants issued during the fiscal years ended
February 2, 2008 and February 3, 2007.

The
fair value of stock option grants are estimated on the date of grant using the Black-Scholes option pricing method. We estimate the expected term consistent with the simplified
method identified in SAB 107 for share-based awards granted during fiscal 2007 and 2006. The simplified method calculates
the expected term as the average of the vesting and contractual terms of the award with the following weighted-average assumptions used for grants issued during the fiscal years ended
February 3, 2007 and February 2, 2008.

Fiscal Year EndedFebruary 3,
2007

February 2,
2008Dividend yield

0.0
%
0.0
%Volatility rate

35.0
%
53.4
%Forfeiture rate

8.0
%
10.0
%Average expected life (in years):Expected livesEight years

6.38

6.38Expected livesFive years

6.00

6.00Average risk-free interest rate

4.77
%
4.55
%


56

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

The
following table summarizes the Company's stock option and restricted stock activity for the year ended February 2, 2008 (in thousands except weighted-average exercise price):

Stock Options

Restricted Stock

Weighted-Average
Exercise PriceOutstanding at February 3, 2007

2,675



$
6.76Granted

515

16

$
36.54Exercised

(1,095
)


$
(2.05
)Forfeited

(137
)


$
(17.55
)Outstanding at February 2, 2008

1,958

16

$
16.29Exercisable at February 2, 2008

561



$
5.50


During
the year ended February 2, 2008, the Company granted 515,000 stock options with a Black-Scholes weighted average fair value of $21.02 and a weighted average exercise price
of $36.54. Included in the total stock options granted during the year ended February 2, 2008 were 40,000 options granted to the Board of Directors with a Black-Scholes weighted average fair
value of $22.36 and an exercise price of $37.95. In connection with these grants of stock options, the Company recognized approximately $3.3 million in stock-based compensation expense during
the year ended February 2, 2008 of which approximately $0.5 million was attributable to the Board of Directors.

During
the year ended February 2, 2008, the Company granted 16,000 shares of restricted stock to employees with an average fair market value on the date of grant of $37.19 per
share. In connection with these grants, the Company recognized approximately $69,000 in stock-based compensation expense during the year ended February 2, 2008.

The
Company recorded $4.6 million, $2.1 million and $0.2 million of total stock-based compensation expense for the years ended February 2, 2008,
February 3, 2007 and January 28, 2006, of which approximately $0.8 million, $0.3 million and $0, respectively, was attributable to the Board of Directors. The stock-based
compensation expense is calculated on an accelerated method over the vesting periods of the related options. This charge had no impact on the Company's reported cash flows. For the years ended
February 2, 2008, February 3, 2007 and January 28, 2006, the Company recorded approximately $0.2 million each year, respectively, in stock based compensation expense
pursuant to APB 25. Under the modified prospective method of transition of SFAS No. 123(R), the Company is not required to restate its prior period financial statements to reflect
expensing of share-based compensation under SFAS No. 123(R). At February 2, 2008 and February 3, 2007, there was approximately $9.2 million and $4.6 million,
respectively, of total unrecognized compensation cost related to unvested stock options of which approximately $0.5 million, each year, was attributable to the Board of Directors. This cost is
expected to be recognized over a period of approximately three to eight years.

The
Company accounts for unvested stock-based employee compensation arrangements granted prior to its initial public offering on the intrinsic value method in accordance with the
provisions of APB No. 25, and related amendments and interpretations. For these awards, the Company complies with the disclosure provisions of SFAS 123.

Net Income per ShareBasic net income per share is based on the weighted average number of common shares outstanding during
the period. Diluted net income per share is based on the weighted average number of common shares and common share equivalents outstanding during the period. Common share equivalents included in the
computation represent shares issuable upon assumed exercise of outstanding stock options and non-vested restricted stock. Potentially anti-dilutive securities

57

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

not
included in the calculation of diluted earnings per share include options to purchase common stock where the option exercise price is greater than the average market price of the Company's common
stock during the period reported. Total anti-dilutive common stock options not included in the calculation of diluted earnings per share were approximately 130,000, 40,000 and 0 for the
fiscal years ended February 2, 2008 and February 3, 2007, and January 28, 2006, respectively.

If
the computed fair values of the awards had been amortized to expense over the vesting period of the awards, pro forma net income and net income per share would have been reduced to
the fiscal 2005 pro forma amounts indicated in the following table (in thousands, except per share data):

Fiscal Year EndedJanuary 28,
2006Net income, as reported

$
12,851Add: Stock-based compensation expense, asreported, net of tax


102Deduct: Stock-based employee compensation expense determined under fair-value-based method, net of tax


(362
)Pro forma net income

$
12,591Net income per share:Basic-as reported

$
0.50Basic-pro forma

$
0.49Diluted-as reported

$
0.47Diluted-pro forma

$
0.46


Merchandise RiskThe Company's success is largely dependent upon its ability to gauge the fashion tastes of
its customers and provide merchandise that satisfies customer demand. Any inability to provide appropriate merchandise in sufficient quantities in a timely manner could have a material adverse effect
on the Company's business, operating results and financial condition.



In June 2006, the FASB issued Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income
Taxes"an Interpretation of FASB Statement No. 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on de-recognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN No. 48 in fiscal 2007. The
adoption of FIN No. 48 did not have a material effect on the Company's consolidated financial position or results of operations in fiscal 2007.

In
September 2006 the FASB issued SFAS No. 157,"Fair Value Measurements". SFAS No. 157 defines fair value, establishes
framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, however the FASB has delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008
for nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently occurring basis.

58

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

The
Company does not expect the adoption of SFAS No. 157 to have a material effect on the Company's consolidated financial position or results of operations.

In
September 2006 The SEC released Staff Accounting Bulletin ("SAB") No. 108,"Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statements". SAB 108 provides guidance on how the effects of the carryover or reversal of prior year financial statement
misstatements should be considered in quantifying a current year misstatement. The Company adopted the guidance in SAB 108 beginning in the fourth quarter of fiscal year 2006. The adoption of
SAB 108 did not have a material impact on the Company's consolidated financial position or consolidated results of operations for fiscal 2006.

In
February 2007, the FASB issued SFAS No. 159,"The Fair Value Option for Financial Assets and Financial Liabilities"including an
amendment of FASB Statement No. 115, which provides entities with an option to report selected financial assets and liabilities at fair value. SFAS No.159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This statement is effective as of
the beginning of the first fiscal year that begins after November 15, 2007. The Company does not expect the adoption of SFAS No. 159 to have a material effect on the Company's
consolidated financial position or results of operations.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"), which replaces SFAS No. 141, "Business Combinations"
("SFAS 141"). SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition
method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred;
non-controlling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS No. 109,
"Accounting for Income Taxes," such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date
of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. We are currently evaluating the effects, if any, that SFAS 141(R) may have on our
consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements." SFAS
No. 160 amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and requires (i) classification of non-controlling interests, commonly referred
to as minority interests, within stockholders' equity, (ii) net income to include the net income attributable to the non-controlling interest and (iii) enhanced disclosure of
activity related to non-controlling interests. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of SFAS
No. 160 on our consolidated financial statements.

In
December 2007, the Securities and Exchange Commission issued SAB No. 110, "Share-Based Payment"("SAB 110").
SAB 110 amends SAB 107, and allows for the continued use, under certain circumstances, of the "simplified method" in developing an estimate of the expected term on stock

59

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

options
accounted for under SFAS 123R. SAB 110 is effective for stock options granted after December 31, 2007. We are currently evaluating the impact of the new provisions of
SAB 110 for stock option awards granted in the future.

3. Leasehold Improvements and Equipment

Leasehold improvements and equipment consist of the following:

Fiscal Year EndedFebruary 3,
2007

February 2,
2008(In thousands)Leasehold improvements and other equipment

$
52,773

$
68,669Computer equipment


7,347


10,002Fixtures and other


26,392


35,79786,512


114,468Less accumulated depreciation


(36,623
)

(48,531
)$
49,889

$
65,937


Depreciation
expense on leasehold improvements and equipment was $14.6 million, $10.4 million, and $7.5 million for fiscal 2007, 2006 and 2005,
respectively.

4. Revolving Credit Facility

We have a credit agreement with Wells Fargo HSBC Trade Bank, N.A. The credit agreement provides us with a secured revolving credit facility until
August 30, 2009 of up to $25.0 million. This facility replaces our $20.0 million secured revolving credit facility with Bank of America, N.A., which terminated effective
August 31, 2006. The secured revolving credit facility provides for the issuance of
standby commercial letters of credit in an amount not to exceed $5.0 million outstanding at any time and with a term not to exceed 365 days, although the amount of borrowings available
at any time under our secured revolving credit facility is reduced by the amount of standby letters of credit outstanding at that time. There were no outstanding borrowings under the secured revolving
credit facility at February 2, 2008 or February 3, 2007. The Company had open letters of credit outstanding under our secured revolving credit facility of approximately
$0.5 million at February 2, 2008 and approximately $0.7 million at February 3, 2007. The secured revolving credit facility bears interest at floating rates based on the
lower of the prime rate (6.00% at February 2, 2008) minus 0.50% or the LIBOR rate (4.22% at February 2, 2008), plus 1.00% for advances over $500,000 for a minimum of 30 days and a
maximum of 180 days. The credit agreement contains a number of restrictions and covenants that generally limit our ability to, among other things, (1) incur additional debt,
(2) undergo a change in ownership and (3) enter into certain transactions. The credit agreement also contains financial covenants that require us to meet certain specified financial
tests and ratios, including, minimum net income after taxes, maximum total liabilities divided by tangible net worth and minimum quick asset ratio. All of our personal property, including, among other
things, our inventory, equipment and fixtures, has been pledged to secure our obligations under the credit agreement. We must also provide financial information and statements to our lender. We were
in compliance with all such covenants at February 2, 2008.

60

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Income Taxes

During fiscal 2007, we adopted the provisions of FIN 48. FIN 48 prescribes a comprehensive model for how a company should recognize, measure,
present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain
position may be recognized only if it is "more likely than not" that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax
benefit that is greater than fifty percent likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. Interest recognized in
accordance with this Interpretation may be classified in the financial statements as either income taxes or interest expense, based on the accounting policy election of the enterprise. The Company has
elected to classify any interest expense recognized under this Interpretation as income taxes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.
The majority of the Company's returns are no longer subject to U.S. federal and state examinations by tax authorities for years before fiscal 2004.

The
components of deferred income taxes are:

Fiscal Year EndedFebruary 3,
2007

February 2,
2008(In thousands)Deferred tax assets:Charitable contributions

$


$
456Deferred rent


5,184


7,808Inventory


1,507


2,131Employee benefits, including stock based compensation


1,088


2,742Total deferred tax assets


7,779


13,137Deferred tax liabilities:Property and equipment


(6,422
)

(8,016
)Goodwill


(444
)

(773
)Prepaid expenses


(203
)

(1,812
)Total deferred tax liabilities


(7,069
)

(10,601
)Net deferred tax asset

$
710

$
2,536


61

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Income Taxes (Continued)

The
components of the provision (benefit) for income taxes are:

Fiscal Year EndedJanuary 28,
2006

February 3,
2007

February 2,
2008(In thousands)CurrentFederal

$
7,243

$
11,870

$
14,554State


1,334


2,195


2,616Total current


8,577


14,065


17,170DeferredFederal


(656
)

(1,110
)

(1,550
)State


(77
)

(205
)

(276
)Total deferred


(733
)

(1,315
)

(1,826
)Provision for income taxes

$
7,844

$
12,750

$
15,344


The
reconciliation of the income tax provision at the U.S. federal statutory rate to the Company's effective income tax rate is as follows for the fiscal year ended:

Fiscal Year EndedJanuary 28,
2006

February 3,
2007

February 2,
2008Expected U.S. federal income taxes at statutory rates

35.0
%
35.0
%
35.0
%State and local income taxes, net of federal effect

4.0

3.8

3.7Permanent differences

0.6

(0.7
)
(1.1
)Other

(1.7
)
(0.2
)
0.137.9
%
37.9
%
37.7
%


6. Stock Options

During fiscal 1997 the Company adopted the 1993 Stock Option Plan (the "1993 Plan") to provide for the granting of nonqualified stock options to executive
officers and key employees of the Company as determined by a committee of the Company's board of directors, the 1993 Plan Committee (the "Committee").

The
date of grant, option price, vesting period and other terms specific to options granted under the 1993 Plan are determined by the Committee. All stock options granted under the 1993
Plan vest over a fixed period and expire no later than ten years from the date of grant. No additional awards may be granted under the 1993 Plan. Prior to fiscal 2004, the option price for all options
granted was equal to the fair market value of the Company's common stock at the date of grant.

During
fiscal 2004 the Company adopted the 2004 Stock Option Plan (the "2004 Plan") to provide for the granting of incentive stock options and nonqualified stock options to executive
officers and key employees of the Company as determined by the 2004 Plan Committee of the Company's board of directors. The terms of the 2004 Plan are generally the same as the 1993 Plan. The Company
has

62

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock Options (Continued)

authorized
7,365,586 split adjusted shares of common stock for issuance under the 2004 Plan. The Company does not plan on making any new stock option grants under the 2004 Plan.

The
Company adopted the 2005 Equity Incentive Plan (the "2005 Plan") on January 24, 2005 and the Company's shareholders approved it on April 27, 2005. Unless sooner
terminated by the Board, the 2005 Plan will terminate on the day before the tenth anniversary of the date that the 2005 Plan was approved by the Company's shareholders. The 2005 Incentive Plan
provides for the grant of incentive stock options, nonqualified stock options, stock bonuses, restricted stock awards, restricted stock units and stock appreciation rights, which may be granted to the
Company's employees (including officers), directors and consultants.

The
aggregate number of shares of common stock that may be issued pursuant to awards granted under the 2005 Plan will not exceed 5,850,000 plus (1) the number of shares that are
subject to awards under the 2005 Plan, the 1993 Plan or the 2004 Plan that have been forfeited or repurchased by us or
that have otherwise expired or terminated, (2) at our option, the number of shares that were reserved for issuance under the 2004 Plan but that were not subject to a grant under such plan at
the completion of the Company's initial public offering in May 2005, and (3) an annual increase on the first business day of each fiscal year such that the total number of shares available for
issuance under the 2005 Plan shall equal 15% of the total number of shares of common stock outstanding on such business day; provided, that with respect to such annual increase, the Board may
designate a lesser number of additional shares or no additional shares during such fiscal year. In no event, however, will the aggregate number of shares available for award under the 2005 Plan exceed
8,775,000 split adjusted shares. As a result of this limitation on the aggregate number of shares available for award under the 2005 Plan, and the 6,614,594 split adjusted shares of the Company's
common stock that were reserved for issuance under our 2004 Plan but that were not subject to grants under that plan at the completion of the initial public offering, up to 2,925,000 split adjusted
shares, may currently be added to the shares of common stock that may be issued pursuant to awards granted under the 2005 Plan pursuant to clause (2) of the first sentence of this paragraph;
however, the Company does not currently intend to add any of those shares to the 2005 Plan.

During
fiscal 2004 the Company issued stock options to certain employees with exercise prices below the fair market value of the Company's common stock at the date of grant. In
accordance with the requirements of APB 25, the Company has recorded stock-based compensation for the difference between the exercise price of the stock options and the fair market value of the
Company's stock at the grant date. During fiscal 2007, 2006 and 2005, the Company recorded stock-based compensation of approximately $0.2 million each year, respectively, related to these
options. Stock-based compensation expense is currently recognized over the vesting period of the awards, generally five to eight years. Excluding the impact of the adoption of FAS 123R, future
compensation expense to be recognized through fiscal 2013 associated with these grants will be $0.5 million. There were 515,000, 517,600 and 0 stock options granted during fiscal years
2007, 2006 and 2005, respectively. In addition the Company issued 16,000 shares of restricted stock in fiscal 2007.

As
of January 28, 2006 no options to purchase shares of common stock were outstanding and no shares had been issued under the 2005 Plan. As of February 2, 2008 and
February 3, 2007 there were, respectively, 898,100 and 484,600 options to purchase shares of common stock issued and outstanding under the 2005 Plan.

63

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock Options (Continued)

The
following table summarizes information concerning outstanding and exercisable options at February 2, 2008:

Options Outstanding

Options
ExercisableExercise Price

Number of
Options

Weighted-Average
Remaining
Contractual Life

Number of
Options$            1.09

187,894

1.3

187,894$            1.78

405,746

3.6

190,553$            3.87

466,150

5.3

112,203$24.89-27.31

344,800

8.1

43,316$30.52-33.59

50,000

8.4

16,670$35.85-39.05

488,300

9.1

10,000$41.15-41.86

15,000

9.6

Total

1,957,890



560,636


7. Related Party Transactions

During fiscal 2005, the Company paid $1,000 in fees on behalf of its Parent, resulting in a balance of $149,000, which was forgiven and the Parent was
subsequently dissolved in connection with the Company's initial public offering. This amount was reported in shareholders' equity and expensed to selling, general and administrative expense.

In
fiscal 2005 the Company paid Brentwood Private Equity III, LLC a consulting fee of $53,000 under a Corporate Development and Administrative Services Agreement. This agreement
was subsequently terminated in connection with the initial public offering.

The
Company committed charitable contributions to Zumiez Foundation in fiscal 2007 and fiscal 2006 of approximately $581,000 and $537,000, respectively. The Company has accrued
charitable contributions payable to Zumiez Foundation for the fiscal years ended February 2, 2008 and February 3, 2007 of approximately $738,000 and $485,000. Zumiez Foundation is a
charitable based non profit organization focused on meeting the various needs of the under-privileged in communities where the Company has retail stores. The Company's Chairman of the Board is also
the President of Zumiez Foundation.

8. Commitments and Contingencies

LeasesThe Company is committed under operating leases for all of its retail store locations. In
addition to minimum future lease payments, substantially all store leases provide for additional rental payments based on sales, as well as common area maintenance charges. During fiscal 2004 the
Company entered into a lease for a new combined home office and distribution center under a non-cancelable operating lease agreement that expires in July 2012 with two renewal options. For
leases that have fixed escalation clauses, minimum rents are recognized on a
straight-line basis over the term of the lease. The Company expenses escalated percentage rent payments in the period they become known. In September 2006 the Company entered into a new
lease agreement for an additional 37,000 square feet of warehouse space. The new lease agreement terminated and replaced the original fiscal 2004 lease with the Landlord. The new lease agreement
provides for an initial lease term of 126 months within which we have an option to extend the lease term for an additional period of five years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and Contingencies (Continued)

Total
rent expense, base rent and contingent rent for the three years ended February 2, 2008, February 3, 2007 and January 28, 2006 (in thousands) are as follows:

Fiscal Year EndedJanuary 28,
2006

February 3,
2007

February 2,
2008Base Rent Expense

$
12,155

$
17,692

$
24,931Contingent and Other Rent Expense


9,996


14,205


18,548Total Rent Expense

$
22,151

$
31,897

$
43,479


Future
minimum commitments (in thousands) on all leases at February 2, 2008 are as follows:

Retail Stores

Home Office

TotalFiscal 2008

$
27,121

$
755

$
27,876Fiscal 2009


27,126


775


27,901Fiscal 2010


26,685


795


27,480Fiscal 2011


25,489


816


26,305Fiscal 2012


23,676


847


24,523Thereafter


83,470


4,014


87,484$
213,567

$
8,002

$
221,569


Purchase CommitmentsThe Company had outstanding purchase orders to acquire merchandise from vendors for approximately
$59.5 million and $70.5 million at February 2, 2008 and February 3, 2007, respectively. These purchases are expected to be financed by cash flows from operations and the
Company's revolving credit facility. The Company has an option to cancel such commitments with no notice prior to shipment.

LitigationOn December 10, 2007, a putative class action complaint was filed in the U.S. District Court for the Western
District of Washington against the Company and certain of its current and former directors and officers. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. A substantially similar complaint was filed in the same court on December 14, 2007. These cases, which
were subsequently consolidated, purport to be brought on behalf of a class of purchasers of the Company's stock during the period March 14, 2007 to November 7, 2007. Plaintiffs allege
that the defendants violated the federal securities laws during this period of time by, among other things, making misrepresentations about the Company's projected financial results in order to
artificially inflate the Company's stock price. Plaintiffs are seeking compensatory damages in an unspecified amount, interest, and an award of attorneys' fees and costs. Plaintiffs have until
May 5, 2008 to file a consolidated amended complaint.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and Contingencies (Continued)

In addition, on December 20, 2007, a shareholder derivative action was filed in the Superior Court of the State of Washington (Snohomish County), allegedly
on behalf of and for the benefit of the Company, against certain of the Company's current and former directors and officers. The Company was named as a nominal defendant. The derivative complaint is
based on the same allegations of fact as in the securities class action, and claims that the defendant directors and officers breached fiduciary duties, abused their control, engaged in gross
mismanagement, wasted corporate assets, unjustly enriched themselves, and engaged in insider trading. The complaint seeks unspecified damages, restitution, disgorgement of profits, equitable and
injunctive relief, attorneys' fees, costs, and expenses. Because the complaint is derivative in nature it does not seek monetary damages from the Company. However, the Company may be required
throughout the pendency of the action to advance the legal fees and costs incurred by the defendant directors and officers.

The
Company is unable to predict the outcome of these cases. A court determination in any of these actions against the Company could result in significant liability and could have a
material adverse effect on the Company's business, results of operations or financial condition.

Insurance ReservesThe Company is responsible for medical insurance claims up to a specified aggregate amount. The Company
maintains a reserve for estimated medical insurance claims based on historical claims experience and other estimated assumptions.

Employment AgreementThe Company has an employment agreement in place with a key employee. The agreement provides that if the
Company terminates the employee's employment without cause or if he terminates his employment for good reason, the employee could be entitled to continue to receive his base salary for a time period
not to exceed eighteen months.

9. Goodwill

In connection with the acquisition of Action Concepts Fast Forward, Ltd., on June 24, 2006 the Company recorded goodwill in accordance with
SFAS 141"Business Combinations."As of November 3, 2007, the Company had $250,000 of restricted cash held in escrow that was payable to
Action Concepts Fast Forward, Ltd. This was accounted for as an addition to goodwill resulting in an increase in the total purchase price of the acquisition. The Company recorded
$13.2 million of goodwill as the excess of the purchase price of $15.5 million over the fair value of the net amounts assigned to assets acquired and liabilities assumed. In accordance
with SFAS 142,"Goodwill and Other Intangible Assets,"the Company will continue to assess, in accordance with our "goodwill" policy as stated in
Note 2, whether goodwill is impaired.

10. Business Acquisition

In June, 2006, we completed the acquisition of 100% of the ownership of Action Concepts Fast Forward, Ltd., an apparel and accessory retail sales company
which operated 20 stores (17 in Texas, 2 in
Oklahoma and 1 in California). The ability to expand operations into Texas with a full complement of stores at one time was the primary reason for the acquisition. Total costs of the acquisition were
$15.5 million and were paid in cash plus assumption of liabilities. The Company completed an independent appraisal to determine the final allocation of the purchase price.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Business Acquisition (Continued)

The
following table summarizes the allocation of fair values of the assets acquired and liabilities assumed (in thousands):

Cash in stores

$
15Prepaid expenses


143Other current assets


168Merchandise inventory


4,227Property & equipment


1,819Goodwill


13,154Checks drawn in excess of bank balance


(608
)Accounts payable


(1,712
)Short-term debt


(732
)Other current liabilities


(957
)Fair value of net assets acquired, including Goodwill

$
15,517


The
transaction was accounted for under the purchase method of accounting and, accordingly, the purchased assets and assumed liabilities were recorded at their estimated fair values. The
purchase price allocation resulted in an excess of purchase price over net tangible assets acquired of
$13.2 million. All of the excess of purchase price over net tangible assets acquired was attributed to goodwill, which is not subject to amortization for book purposes. The Company is
amortizing the goodwill for tax purposes utilizing the 338(h)(10) Federal tax code election. At February 2, 2008, $250,000 was held in escrow and due to the ownership of Action Concepts Fast
Forward, Ltd. for payment of future claims. Accordingly, this amount is reflected in the purchase price of the related acquisition and allocated to goodwill.

The
following summarized unaudited pro forma information (in thousands) assumes the acquisition of Fast Forward had occurred at the beginning of the period presented. The pro forma
information does not purport to indicate what would have occurred had the acquisition been made at the beginning of the period presented, nor of the results which may occur in the future.

Fiscal Year EndedJanuary 28,
2006

February 3,
2007Pro Forma Information (Unaudited)Net Sales

$
229,517

$
306,761Net Income

$
13,242

$
20,082Basic Earnings Per Share

$
0.51

$
0.73Diluted Earnings Per Share

$
0.48

$
0.70


The
Company incurred transaction expenses of approximately $663,000 related to the employee severance and transition expense of the acquisition. To date, this amount has been paid in
full. These costs were accounted for under Emerging Issues Task Force 95-3"Recognition of Liabilities in Connection with a Purchase Business
Combination."

11. Employee Benefit Plans

The Zumiez Investment Plan (Z.I.P.) is a qualified plan under Section 401(k) of the Internal Revenue Code. Employees that have been with the Company for a
year, work an average of thirty

67

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Employee Benefit Plans (Continued)

hours
a week and are twenty-one or older are eligible to participate in the Z.I.P. The Company's 401(k) matching and profit-sharing contributions are discretionary and are determined
annually by the Company. The Company contributed $250,000, $250,000, and $225,000 to the plan during fiscal 2007, 2006 and 2005, respectively.

The
Company offers an Employee Stock Purchase Plan (the "ESPP") for eligible employees to purchase the Company's common stock at a 15% discount of the lesser of fair market value of the
stock on the first business day or the last business day of the offering period. The ESPP provides for six month offering periods commencing on October 1 and April 1 of each year.
Employees can contribute up to 15% of their pay but may not exceed $25,000 in a calendar year. The maximum number of shares an employee may purchase during an offering period is 2,000 shares.
Employees are eligible to participate in the ESPP if they work at least 20 hours a week and at least five months in a calendar year.

12. Net Income Per Share, Basic and Diluted

Basic net income per share is based on the weighted average number of common shares outstanding during the period. Diluted net income per share is based on the
weighted average number of common shares and common share equivalents outstanding during the period. Common share equivalents included in the computation represent shares issuable upon assumed
exercise of outstanding stock
options and non-vested restricted stock. Potentially anti-dilutive securities not included in the calculation of diluted earnings per share include options to purchase common
stock where the option exercise price is greater than the average market price of the Company's common stock during the period reported. Total common stock options not included in the calculation of
diluted earnings per share were 130,000, 40,000, and 0 for the years ended February 2, 2008, February 3, 2007, and January 26, 2006, respectively.

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

Fiscal Year endedJanuary 28,
2006

February 3,
2007

February 2,
2008Net income

$
12,851

$
20,856

$
25,326Weighted average common shares for basic net income per share


25,879,675


27,542,891


28,608,818Dilutive effect of stock options and restricted stock


1,497,009


1,160,146


713,519Weighted average common shares for diluted net income per share


27,376,684


28,703,037


29,322,337Basic net income per share

$
0.50

$
0.76

$
0.89Diluted net income per share

$
0.47

$
0.73

$
0.86


Options
to purchase 130,000 shares of common stock with a weighted average value of $38.58 per share were outstanding at the end of fiscal 2007 but were not included in the computation
of diluted earnings per share because the options' exercise price was greater than the $36.62 average market price for the Company's common shares.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Subsequent EventLitigation

On March 05, 2008 a putative class action lawsuit was filed against the Company in the Superior Court of the State of California, County of Alameda,
wherein it is alleged that the Company had violated certain California wage and hour laws. The Lawsuit purports to be brought on behalf of a class of all persons who are employed or who have worked as
hourly employees for the Company in the State of California from March 5, 2004 through the date of resolution of the Lawsuit. The Complaint alleges that the Company, in violation to Californian
law, failed to: (1) pay overtime wages, and (2) provide meal periods, among other claims. The Company is preparing a response to the allegations of the Lawsuit. The outcome of the
Lawsuit cannot be ascertained at this time.

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EXHIBIT INDEX

|3.1   |  | Articles of Incorporation. [Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                                                
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   |  | Bylaws. [Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                                                                   
|4.1   |  | Form of Common Stock Certificate of Zumiez Inc. [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                           
|10.1  |  | Business Loan Agreement dated May 29, 2003 between Bank of America, N.A. and Zumiez Inc., as modified by Loan Modification Agreement dated September 30, 2004. [Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (file No. 333-122865)]                                                                           
|10.2  |  | Lease Agreement between Merrill Creek Holdings, LLC and Zumiez Inc. dated August 2, 2004. [Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                
|10.3  |  | Executive Agreement, dated as of November 4, 2002 between Zumiez Inc. and Richard M. Brooks. [Incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                             
|10.4  |  | Carrier Agreement between United Parcel Service Inc. and Zumiez Inc. dated July 4, 2005. [Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended July 30, 2005 as
filed on September 13, 2005]                                                                                                          
|10.5  |  | Zumiez Inc. 1993 Stock Option Plan. [Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                                      
|10.6  |  | Zumiez Inc. 2004 Stock Option Plan. [Incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                                      
|10.7  |  | Zumiez Inc. 2005 Equity Incentive Plan. [Incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                                  
|10.8  |  | Zumiez Inc. 2005 Employee Stock Purchase Plan. [Incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                                           
|10.9  |  | Form of Indemnity Agreement between Zumiez Inc. and each of its officers and directors. [Incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                  
|10.10 |  | Limited Liability Company Agreement of Zumiez Holdings LLC. [Incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (file No. 333-122865)]                                                                                                                                                                             
|10.11 |  | Modification dated May 11, 2005 to Business Loan Agreement dated May 29, 2003 between Bank of America, N.A. and Zumiez Inc., as modified by Loan Modification Agreement dated September 30, 2004. [Incorporated by reference to
Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the period ended July 30, 2005 as filed on September 13, 2005]
|10.12 |  | Equity Purchase Agreement with Gerald R. Anderson, Brandon C. Batton, AC Fast Forward LLC and AC Fast Forward Mgt., LLC dated May 16, 2006. [Incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on
Form 10-Q for the period ended July 29, 2006 as filed on September 12, 2006].                                                     

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|10.13 |  | Lease Agreement between Merrill Creek Holdings, LLC and Zumiez Inc. dated October 2, 2006. [Incorporated by reference to Exhibit 10.13 to the Company's Form 8-K filed on October 4, 2006]                                                       
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Credit Agreement with Wells Fargo HSBC Trade Bank, N.A. dated September 1, 2006.. [Incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the period ended October 28, 2006 as filed on
December 8, 2006].
|21.1  |  | Subsidiaries of the Company. [Incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form S-1 filed on October 18, 2005 (file No. 333-129101)]                                                                     
|23.1  |  | Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                        
|23.2  |  | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.                                                                                                                                                            
|31.1  |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                      
|31.2  |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                      
|32.1  |  | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.                                                                                     

Copies
of Exhibits may be obtained upon request directed to the attention of our Chief Financial Officer, 6300 Merrill Creek Parkway, Suite B, Everett, WA 98203, and many are available
at the SEC's website found at www.sec.gov.

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