SecProbe.io

CORRESP
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March 25, 2005

Yong Kim, Staff Accountant

Securities and Exchange Commission

Mail Stop 0404

450 Fifth Street N.W.

Washington, D.C.  20549

Re:                               Zumiez Inc.

Registration Statement on Form S-1

File No. 333-122865

Filed February 17, 2005

Dear Ms. Kim:

Pursuant to our conversation
on Wednesday, March 23, 2005, and your follow-up conversation with Chris K.
Visser, one of our attorneys, on Thursday, March 24, 2005, please find below
our response to Comment 50 of the comment letter of the staff (the “Staff”) of
the Division of Corporation Finance of the Securities and Exchange Commission
(the “Commission”), dated March 16, 2005 (the “Comment Letter”), addressed to
Brenda I. Morris, Chief Financial Officer of Zumiez Inc. (the “Company”).  Please note that this response letter is in
response to Comment 50 only, and that we will provide the Company’s responses
to the balance of the Staff’s comments set out in the Comment Letter in a
separate correspondence at the time the Company files the next amendment to the
above referenced Registration Statement on Form S-1.  We have reprinted below the Staff’s Comment
50 in bold and thereunder set forth our related response.

50.                               COMMENT:  Please supplementally provide us with a
schedule showing, in chronological order from February 1, 2004 to the most
recent practicable date, the following information for each issuance of common
stock, options and any other instrument that is convertible into common
stock.  Please present issuances to
employees separately from issuances to non-employees (if any). Tell us the date
of each issuance, the instrument issued, the number of shares/options issued,
the exercise terms, the fair value of an underlying share of your common stock
on each issuance date, how you determined the fair value on each date and the
amount of compensation expense recorded in your financial statements associated
with each issuance.

If your expected IPO price is more than your estimated fair value on
which compensation expense was measured, supplementally explain, in detail, the
rationale supporting your estimate of fair value.  Discuss and quantify the intervening events
that occurred between the issuance date and the date you filed your
registration statement that increased the fair value of your stock.  You may also want to provide us with details
of any independent appraisals.

Furthermore, please tell us the first date you began discussions with
any underwriter in which possible ranges of company value were discussed and
provide us with those ranges and the related dates.  We may have further comments after we review
your response.  We will not review any
response until you provide us with your anticipated IPO price range.

RESPONSE:  We have supplementally provided with this
response letter a memorandum addressed to your attention setting forth the
Company’s valuation methodology regarding option grants in 2004.  This memorandum is attached as Exhibit A to
this letter and includes a summary of all options granted in 2004 and the
details relating thereto.  This will
confirm to the Staff that no options were granted to non-employees.  The memorandum includes the methodologies used
to determine fair market value and unearned stock compensation.  The memorandum also includes the discussion
points requested on the expected initial public offering valuation and the
events that have impacted valuation from the last date of our grants.  Finally, this will confirm to the Staff that
the initial meetings that the Company conducted with potential underwriters
were held in November 2004.

Please call our attorneys at
Preston Gates & Ellis LLP—specifically Gary J. Kocher, or in his absence,
Chris K. Visser, both of whom can be reached at (206) 623-7580 if you have any
questions or further comments with respect to the foregoing.

  Very truly yours,

  Zumiez Inc.

  By

  /s/ BRENDA I. MORRIS

  Brenda I. Morris

  Chief Financial Officer

  cc:

  Richard M. Brooks

  Zumiez Inc.

  6300 Merrill Creek Parkway

  Suite B

  Everett, WA 98203

  Eric S. Haueter, Esq.

  Sidley Austin Brown &
  Wood LLP

  555 California Street

  San Francisco, CA 94104

  Gary J. Kocher, Esq.

  Chris K. Visser, Esq.

  Preston Gates & Ellis
  LLP

  925 Fourth Avenue

  Suite 2900

  Seattle, WA 98104

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Exhibit A

Confidential Memorandum

  To:

  SEC Accounting Reviewer

  From:

  Brenda Morris, CFO Zumiez Inc.

  Subject:

  Stock Option Grants

  Date:

  March 24, 2005

The Company has issued stock option grants to employees since 1993 as a
means to incent employees.  The history
of the plans is as follows:

•                  In 1993, the Company adopted the 1993 Stock Option Plan (the “Plan”) to
provide for the granting of nonqualified stock options to employees and
directors of the Company as determined by the 1993 Plan Committee (the “Committee”),
Rick Brooks and Tom Campion.  The Company
authorized 14,238 shares of common stock for issuance under the Plan.  The date of grant, option price, vesting
period and other terms specific to options granted under the Plan are determined
by the Committee.  All stock options
granted under the Plan vest over a fixed period and expire ten years from the
date of grant.  The option price for all
options granted was equal to the fair market value of the common stock at the
date of grant.

•                  In November 2002, a minority interest in the Company’s parent was sold
to an unrelated party (“Brentwood”).  At
the time of the transaction in November 2002 the value of the Company was estimated
at $69.5 million based on the purchase price paid by Brentwood.

•                  During 2004, the Company adopted the 2004 Stock Option Plan (the “2004
Plan”) to provide for the granting of nonqualified stock options to employees
and directors of the Company as determined by the 2004 Plan Committee (the “Committee”).  The terms of the plan are substantially the
same as the plan adopted in 1993.

•                  In
June 2004, the Company granted additional options and utilized Brentwood to
review the option pricing.  As always, the
Company wished to grant the options with an exercise price equal to the current
fair market value of the common stock.  In
order to determine the fair market value of the Company’s common stock, Brentwood
analyzed the valuations of certain publicly traded companies generally comparable
to Zumiez.  These companies include
selected mall-based retailers that focus on teenage male and female customers
and that have demonstrated strong recent financial performance.  Brentwood confirmed that the key valuation metrics
for these public companies included (1) total enterprise value (“TEV”) as a
multiple of trailing operating income (“EBIT”), (2) TEV as a multiple of
trailing operating cash flow (“EBITDA”), (3) stock price as a multiple of
projected fiscal 2004 earnings per share (“EPS”) and (4) stock price as a
multiple of projected fiscal 2005 EPS.  In
the analysis, the “Zumiez Valuation” was determined by applying the median
valuation multiple to each of the Company’s respective historical financial
results and financial projections to determine the “Implied Equity Value.”  This methodology yielded a range of Implied
Equity Values from $63.4 million to $130.8 million.  Given that each of the valuation metrics
provided a unique valuation for the Company, we then calculated an “Average
Equity Valuation” which is equal to the average of the valuations determined by
the four valuation methodologies described above.  Based on this analysis, the fair market value
for the common stock of the Company was approximately $93.1 million, or $1,883
per share.  This per share price was determined
using the Company’s fully diluted shares outstanding.  Brentwood concluded that a valuation

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3/24/2005

of
approximately $93.1 million ($1,883 per share) was a reasonable estimate for
the current fair market value in 2004, of the Company’s common stock.  The Company concurred, and therefore, the
exercise price for the option grants was recommended to be set at, or above,
the $1,883 per share valuation.  For
conservative purposes Brentwood recommended rounding the $1,883 per share to a $2,000
per share valuation, which implied a total equity valuation of $98.9 million.  On September 9, 2004, we issued one set of
grants, equal to an aggregate of 1,452 shares, in 2004 at the $2,000 exercise
price; this entire grant was issued to employees of the Company and generally
vests over eight years.

The Company experienced very positive and
better than expected result in the back-to-school season for 2004.  Once results were compiled, the Company
reviewed options to effect an IPO or other similar transaction.  In November 2004, the Company received
marketing proposals from three investment banking firms, with initial
valuations ranging from $175 million to $315 million for an offering to be
completed in this range in mid 2005 to late 2005.  These valuations were intended to represent
the value of the Company at an IPO in mid 2005 to late 2005 and not the value
of the Company at November 2004.  The
valuations were not representative of the performance to date at the time of
the proposals.  These marketing proposals
were done prior to any due diligence by these firms and contained a wide range
of values.  Ultimately we determined that
the best timing for our IPO would be late Spring 2005, and although still
estimates, we believed the valuation range would be $180 million to $215
million, with the final valuation being determined at pricing of the IPO.  The Company experienced very good financial
results through the holiday and post-holiday season for the fiscal year ended
January 29, 2005.  We have exceeded the
initial estimates since results through January 29, 2005 have outperformed our
forecast and expectations.

Conclusion:

Although we had attempted to set the
strike price equal to fair value at the time of grant, the subsequent IPO
discussions resulted in a reassessment of our stock price fair values.  Our anchor points for this reassessment were
the valuation based on the purchase price paid by Brentwood in November 2002
and an estimated valuation, determined in February 2005, of $180 million ($200
million less a 10% lack of liquidity discount) for an IPO in May 2005.  Based on reviewing our valuations, revenue
and income growth from our fiscal year ended December 31, 2002 through to our
fiscal year ended January 29, 2005, we concluded that the Company had grown linearly
from August 2003 to January 29, 2005.

The valuation from November 2002 was not
adjusted until August 2003 because there were limited store openings and lack
of industry growth.  Beginning in August 2003,
the Company began to open new stores thus increasing revenue and gross margin
on a linear basis. In addition the industry saw growth during this same time
period.  As a result, we determined to
utilize a linear approach to value the stock.

Therefore,
in February 2005, we plotted a straight line between the two anchor values
($1,376 on 8/15/03 and $3,640 on 5/31/05) and plotted our 2004 option grant on
September 9, 2004 on this line to determine our per share fair value on that
date.  This resulted in a per share fair
value of $2,727 on that date. At the point in time we granted the options in
2004 we believed that the strike price was conservative, with a valuation of
approximately $1,883 per share, with no private company discount utilized, and
a strike price set at $2,000.  At the
time we originally granted these options we believed that this valuation
overstated the fair market value of the Company’s common equity.  First, most third party valuations of private
companies like Zumiez would incorporate a “private company discount,” typically
in the 20-25% range to account for a reduction in value due to the relative
illiquidity of private companies.
Brentwood did not include any such discount in our analysis.  Secondly, the highest Implied Equity Values
for the Company were those based on the Company’s projected financial results,
due to the Company’s rapid growth trajectory.
At the time of the option grants in early September 2004, the risk of
falling short of these aggressive financial projections was significant.  At the time of the valuation the early
back-to-school indications suggested that the season would be
weaker-than-expected so there was substantial risk in achieving the net income projection
for the fiscal year ending January 29, 2005.
When analyzing the financial projections for the fiscal year ending
January 29, 2005, these risks were magnified

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due
to the length of the projection period.
Despite such risks, Brentwood used an equal weighting for each of the
valuation metrics regardless of whether the metrics are based on historical or
projected financial results.  In
addition, setting the strike price higher could have had extremely negative
ramifications that would have been counterproductive to employee incentives,
especially in light of our realistic expectations for financial performance at
the time of determining the strike price decision.  Had we underperformed our plan the employee
grants would have been immediately underwater and the purposes of incenting
employees would have been missed.   The Company has been diligent in performing
valuations to ensure that the grants have been issued at the fair market value
of the Company and that we comply with the requirement of issuing grants at
fair market value.  Based on the facts at
the time of each grant we are confident that one can conclude the strike price
represents a reasonable determination of the fair market value per share at the
grant.  However, in hindsight, there are two
primary variables that have improved since the date of the determination of the
2004 strike price:  1) our performance
has exceeded expectations; and 2) our business sector has exceeded expectations
and therefore overall valuations of the comparable companies, as well as the
value of the Company, have improved.

Based upon the valuations conducted by
management and summarized in this memo, compensation charges related to options
granted “in the money” have been recorded as unearned compensation in the
equity section of the balance sheet, and are being amortized to compensation
expense in the P&L, over the vesting period, which is generally eight
years. This is in accordance with APB 25.
We anticipate taking a charge of $1.1 million for the options granted in
2004 over time.  The calculation can be
followed on the attached spreadsheet of the options granted in 2004.  We booked the unearned compensation charge
for the fiscal year ended January 29, 2005 in fiscal Q3 and Q4 based on the
dates of the grants, for a $95 thousand compensation expense in that fiscal
year.  Due to the length of time since
the grants occurred in 2004, we had elected to take the lower end of the
valuation range less a 10% discount, which is more typically 20-25%, which we
believe is a conservative representation of the value differential during the
months prior to the anticipated IPO date.
We will amortize the unearned stock compensation expense, straight line,
over the remaining years of the grants vesting period to match the expected
service of the employee, in return for the grant.  We have determined that we will not take a
forfeiture discount as we cannot estimate what this will be, although two
grants have already been forfeited.   We
believe this is the correct treatment of our stock grants even though we had
initially intended to issue the grants at the fair market value at the time of
the grant.

We
performed a sensitivity analysis in March 2005 based upon an updated valuation
range of $215 million to $240 million for a May 2005 IPO.  Using this updated estimated IPO valuation of
$207 million ($230 million, an election toward the higher end of