Buckle Inc (BKE) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter earnings release conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. Members of Buckle's management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Vice President of Finance and CFO; Kyle Hanson, Corporate Security and General Counsel; and Tom Heacock, Corporate Controller.

As they review operating results for the second quarter ended August 4, 2007, they would like to reiterate the policy of not giving future sales or earnings guidance, and add the following Safe Harbor statement. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors which may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in such forward-looking statements.

Such factors would include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake publicly -- to publicly update or revise any forward-looking statements, even if the experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

I would now like to turn the conference over to your host, Karen Rhoads. Please go ahead.

Good morning. We appreciate you joining our call this morning. Our August 23, 2007 press release reported our net income for the 13 week quarter that ended August 4, 2007 was $11.8 million or $0.38 per share on a diluted basis. And that compares to $6.6 million or $0.22 per share on a diluted basis for the corresponding 13 week quarter that ended July 29 of 2006.

Our year-to-date net income for the 26 week period ended August 4, 2007 was $24 million or $0.78 per share on a diluted basis. And this compares with $16 million or $0.53 per share on a diluted basis for the 26 week period that ended July 29 of 2006.

We would like to note here that the prior year's earnings per share numbers have been adjusted to reflect the impact of our 3-for-2 stock split that we did in January of 2007.

Our net sales for the fiscal quarter increased 21.3% to $124.3 million compared to net sales of $102.4 million for the prior year second quarter. Compared to the same 13 week period of the prior year, our comparable store sales for the quarter increased 10.1%, and total sales on that same 13 week period would have been up 15.1%.

Net sales for our 26 week year-to-date period that ended August 4, 2007 increased 15.7% to $245.4 million from net sales of $212 million for the 26 week period that ended July 29 of 2006. Compared to the same 26 week period in the prior year, our year-to-date comparable store sales increased 8.3%, and total sales for that same 26 week period increased 13%.

Our gross margin for the second quarter improved approximately 410 basis points to 37.4%. This improvement was driven primarily by an increase in merchandise margins, which had about 170 basis point impact, and by leveraged buying, distribution and occupancy costs, which combined had about a 240 basis points impact. And of that 240 basis points of leverage, approximately 100 basis point was attributable to the calendar shift due to the 53rd week of the fiscal 2006 fiscal year, and moving that week ending August 4 into the second quarter.

For the year-to-date period gross margin improved approximately 300 basis points to 37.5%. This improvement was driven primarily by an increase in merchandise margins, which had 160 basis point impact for the year-to-date period, and then by leveraged buying, distribution and occupancy costs, which had about 140 basis point impact. And again, if we look at the calendar shift that would have accounted for about 50 basis points of that 140 basis point impact.

Our selling expense for the quarter was 20.2% of net sales, which was a reduction of approximately 140 basis points from the second quarter of fiscal 2006. The decrease was driven primarily by reductions as a percentage of net sales in store payroll expense and in stock option compensation expense, but also by the leveraging of certain other selling expenses, which were partially offset by increases in expense related to our incentive bonus accruals, health insurance expense, and our bankcard fees.

For the year-to-date period selling expense was 19.8% of net sales, which was a reduction of approximately 100 basis points from the prior year. The decrease was driven primarily by reductions as a percentage of net sales in the store payroll expense and stock option compensation expense, and by the leveraging of certain other selling expenses. And again the selling expenses were partially offset by increases in expense related to the incentive bonus accruals, bankcard fees and health insurance for the year-to-date period.

General and administrative expenses for the quarter were 3.9% of net sales, which was an increase of approximately 30 basis points from the second quarter of fiscal 2006. The increase was primarily attributable to increases in our equity compensation expense recorded that related to outstanding shares of nonvested stock, and expense related to the incentive bonus accrual. Those expenses were partially offset by leveraging of certain other general and administrative expenses.

For the year-to-date period, general and administrative expenses were 4.0% of net sales, which was an increase of approximately 50 basis points from the prior year. The increase was primarily attributable to increases in the equity compensation expense, again related to the outstanding shares of nonvested stock, and also expense related to the incentive bonus accrual. The expenses were partially offset by leveraging of certain other general and administrative expenses during the year-to-date period.

Our operating margin for the quarter was 13.2% compared to 8.1% for the second quarter of fiscal 2006. For the year-to-date period, our operating margin was 13.7% compared to 10.2% in the prior year.

Other income during the second quarter decreased about 1% to $2.3 million. And this decrease was the result of other income recognized in the second quarter of last year that related to proceeds from hurricane Katrina insurance claims, and also the settlement of a lawsuit related to the Visa and MasterCard interchange fees. And that was almost equally offset by an increase in income earned on our Company's cash and investments for the period.

For the year-to-date period other income increased 13.4% to $4.4 million due to an increase in income earned on the Company's cash and investments. And then the income was partially offset by the impact of the previously mentioned proceeds from insurance claims and the lawsuit settlement.

Our income tax expense as a percentage of pretax net income for the quarter was 37.0% compared to 37.2% for the second quarter of fiscal 2006, bringing second quarter net income to the $11.8 million for fiscal 2007 versus $6.6 million for fiscal 2006, an increase of 77.6%.

Year-to-date our income tax expense was 36.8% of pretax net income compared to 37.0% for the prior period -- for the same period in the the prior year, bringing year-to-date net income to $24.0 million in the current year versus $16 million in the prior year. And that is an increase of 50% for the year-to-date.

Our press release also includes a balance sheet as of August 4, 2007, and it includes some of the following data. Our inventory was $96 million, up approximately 5.5% from inventory of $90.9 million at the end of the second quarter of fiscal 2006. Also, cash and investments totaled $187.1 million. And this compares to $183.4 million at the end of fiscal 2006, and $184.9 million at this same time a year ago.

We ended our quarter with $99.8 million of fixed assets, net of acculmulated depreciation. Our capital expenditures for the quarter were $8.6 million, and depreciation expense was $4.8 million. We now expect full year capital expenditures to be in the range of $24 million to $27 million.

For the quarter our units per transaction increased approximately 1%. The average transaction value increased approximately 4%. And our average unit retail increased approximately 3%.

The Buckle ended the quarter with 362 retail stores in 38 states compared to 346 stores in 38 states at the end of the second quarter of fiscal 2006. With the opening of two new stores during fiscal August, we currently operate 364 retail stores in 38 states.

With that I would like to turn the call over to Dennis Nelson, our President and CEO.

Good morning. I would like to start by discussing the performance of our various merchandise categories that led to our 21.3% net sales increase for the fiscal quarter. Mens merchandise sales for the second quarter increased approximately 21.5%. Highlights were denim, woven and knit shirts, shorts, each of which experienced double-digit sales growth. Our average denim price points increased from $70.25 in the second quarter of fiscal '06 to $74 in the second quarter of fiscal '07.

For the quarter our men's business is approximately 45.5% of net sales in both the current and prior year. And average men's price points increased from $37.50 in the second quarter of fiscal '06 to $38.60 in the second quarter of '07.

Women's merchandise sales for the second quarter increased approximately 21%. Highlights were denim, woven and knit tops, shorts, swim and footwear, each which experienced double-digit sales growth. Average denim price points increased from $73.05 in the second quarter of fiscal '06 to $76.60 in the second quarter of fiscal '07. For the quarter our women's business is approximately 54.5% of net sales in both the current and prior year.

Average women's price points increased from $34.50 in the second quarter of fiscal '06 to $35.35 in the second quarter of fiscal '07.

For the quarter accessories sales were up approximately 4.5%, and footwear sales were flat. These two categories accounted for approximately 8% and 6.5%, respectively, of our second quarter net sales, which compares approximately 9.5% and 7.5% for each in the second quarter of fiscal '06.

Average accessory price points were down approximately 6%, and average footwear price points were down approximately 3%. For the quarter the denim accounted for approximately 37.5% of sales, which compares to approximately 38% in the second quarter of last year. Our private-label business continues to represent approximately one-third of our sales, consistent with the prior year.

As Karen mentioned, the total inventory at the end of the period was up approximately 5.5%, and markdown inventory at the end of the period was down compared to the same time a year ago.

During the second quarter we opened nine new stores, bringing our year-to-date count through the end of the second quarter to 13 new stores for the year. With opening the two new stores in fiscal August, and anticipating opening five additional new stores during the remainder of the year. Probably three in the third quarter and two in the fourth quarter.

During the second quarter we also completed four substantial remodels. We completed one additional remodel during the fiscal August, and anticipate completing one more substantial remodel before the end of the year. We also plan to roll out a couple of new tables and hanging fixtures to most all of our stores during the third quarter to update our presentation.

In closing, we're very pleased with our results for the quarter, and feel good about our business as we move forward in 2007.

At this time we will turn it over to Greg to set up for questions. Thank you.

(OPERATOR INSTRUCTIONS). Shaun Smolarz, Sidoti.

My first question is what do you attribute the 10% same-store sales gains for the quarter to, given the very challenging retail environment? Other than easy comparisons to last year, what are the factors would you attribute that to?

I think it is just a combination of our merchandisers doing a great job of putting a nice presentation of the categories that we commented on having double-digit gains, as well as continued improvement in our store management. Our sales team doing a very nice job and working with their presentations with the guests.

We did do a Jones Soda little promotion that somebody tried on a jean at the store. They were able -- we would hand out -- give them a Jones Soda pop. So it kind of made it fun. It was not real promotional. There was prizes is to win online. So it gave us a little something to interact with the guests during July. But mostly I think it is, the stores are -- we're very excited about our presentation for the first half of the year on our product.

Then from a merchandising perspective, is there a particularly hot item now for back to school? And also given the current economic climate, how do you see your customers in terms of the denim? Are they trading down to lower-priced denim, like [a waisted] -- that denim trend in terms of price point for back to school?

Our denim trend, I think is pretty consistent with the past. If we offer a nice selection of -- and we have kind of maybe even expanded some of the brands. But we have a variety of price points. We have a variety of looks from pocket details to simpler pockets. But also from light to dark and different fits. And if the guests finds a look they like, price does not seem to be important to them. They just buy what they like. And that it has worked out well.

If you look online, you will probably see in our tops for Gals there is a wide variety of looks and styles. And we have had a nice response to having the selection and the variety in the store. In the men's, the T-shirt business is very good. The woven business, as we mentioned, was good as well. So no real specific thing that I could comment outside of that.

I think you recently launched an MEK denim which, if I'm correct, about $120 a pair. How is that performing relative to your expectation?

Yes, it is in line with our expectations.

Then you also launched a new -- I think it is private-label -- at your lowest price point, around $20 a pair. Are some customers trading down to that from your mid point prices, or how is that lower-priced denim assortment coming into play?

Actually that jean is in the $40, and it is only in men's. And the response has been fine, but is not a huge part of our business. We're still kind of just seeing how that plays out.

How much of an impact did the sales tax holiday shift in Florida and Texas in July have? Do you think that could benefit August?

Do you have a comment on the shift, Karen?

For the Texas stores that benefit will definitely come in August. We had a couple of states that had their first-ever tax-free weekend, Oklahoma and Louisiana. And those started those last two days in July and ended that Sunday, which would be in August. That was I guess where we would see the main impact.

Just given the current -- a lot of other retailers, including other teen retailers, have somewhat of a cautious tone, like the back half of this year, given the retail and economic environment. What are your thoughts on that environment on your targeted customer base?

I really have no opinion on it. We just feel that our guest -- what matters is our product and our store, and that is how we will play it.

You think that just based on your very strong second quarter performance, really differentiating yourself from how other [coms] have been reporting, really just go through that with some very strong merchandising presentation and assortment?

You're saying did the merchandise assortment make the difference in the second quarter? Is that what I understand the question is?

Right, relative to the industry at large.

Yes, I think that is correct.

[Steven Chang, Avadvian].

Appreciate you taking my call. Could you talk a little bit more about how T-shirts are doing in both men and women, and what percent of your sales were tops this quarter?

Well, we have been very happy with our T-shirt business. In the men's, do you have -- do we have that broken out from the mens?

On just the knits, 28.6 on knits for the quarter.

28.6% of sales were tops, or were --?

Were knit.

Were knit. Yes, knit tops.

How about tops overall?

Over 36% of our sales.

Finally, with denim could you talk about whether -- are you -- is your mix shifting more to private-label or more to brands?

I would say our inventory is pretty consistent with a year ago private-label. On the ladies side that might be slightly less, maybe a little more selection on brands than men's. It might be slightly up from a year ago at private-label.

(OPERATOR INSTRUCTIONS). [Debby Liu, Vision Funds].

Congratulations on a great quarter. Karen, I just had a question in terms of the shift with the calendar. Are you guys getting -- I think you're losing the high-volume week in August that second quarter gained, and then you're getting a week in November. Can you just quantify the differences between the two, and what kind of impact we might see there?

You're looking at for the whole third quarter, you mean?

Yes.

I have not taken a look at it I guess for the whole third quarter, so I guess I could not speak to that offhand.

I will follow up with you off-line then. Then, Dennis, on the denim, just following up on Shaun's question, it seemed to me like I recall that you are introducing more higher priced denim lines into the store. I just wanted to see what percentage of your denim assortment this year versus last year is denim $100 and above.

Last year we probably had a reasonable amount of Lucky over $100. So we probably have less Lucky in the stores over that price point this year, but we have added MEK, and we have tested a few other items. So it is probably pretty similar.

That means your AURs are pretty -- you expect them to be pretty flat year to year?

Yes, very, very close anyway.

Thank you very much.

At this time we are no further questions.

Thank you very much. Good luck.

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