Buckle Inc (BKE) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Members of Buckles' management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, VP of Finance and CFO; Kyle Hanson, Corporate Secretary and General Counsel; and Tom Heacock, Corporate Controller. As they review their operating results for the first quarter which ended May 3, they would like to reiterate their policy of not giving future sales or earnings guidance, and have 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 expressly implied in such forward looking statements. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. The company does not undertake to publicly update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. There will also be question and answer session on today's call. Instructions will be given to you at that time. (OPERATOR INSTRUCTIONS) We do remind you today's call is being recorded, and starting off today, we have Karen Rhoads. Please go ahead.

Thank you. Good morning all. I will start off with covering some of the financial results here. Our May 22, 2008 press release reported that our net income for the first quarter that ended May 3, 2008, was $18.7 million, or $0.61 per share on a diluted basis, and that is compared to $12.2 million, or $0.40 per share on a diluted basis for the prior year first quarter, which ended May 5 of 2007. Our net sales for the 13-week first quarter increased 32.4% to $160.3 million, and that compared to net sales of $121.1 million for the prior year first quarter. Our comparable store sales for the quarter increased 25.6%, compared to the same period of the prior year. Gross margin for the quarter improved approximately 330 basis points, to 40.9%. This improvement was driven by an increase in merchandise margin, which had about an 80 basis point impact, and by leveraging of buying distribution and occupancy costs, and those combined have an impact of about 270 basis points. These improvements were partially offset by an increase in expense related to the incentive bonus accrual.

Selling expense for the quarter was 19.7% of net sales, which was an increase of approximately 30 basis points from the first quarter of fiscal 2007. The increase was driven primarily by an increase in expense related to do incentive bonus accruals, and to a lesser extent to increases in payroll tax expense and bank card fees. These increases were partially offset by reductions, as a percentage of net sales, in store payroll expense, and by the leveraging of certain other selling expenses. General and administrative expenses for the quarter were 4.2% of net sales, which was an increase of about 10 basis points from the first quarter of fiscal 2007. This increase was primarily attributable to an increase in expense related to the incentive bonus accrual, and it was partially offset by the leveraging of certain other general and administrative expenses.

Our operating margin for the quarter was 17.1%, compared to 14.1% for the first quarter of fiscal 2007. Other income for the quarter was $2.3 million, which compares to $2.1 million for the first quarter of fiscal 2007. Income tax expense, as a percentage of pre-tax net income, was 37% for the first quarter of fiscal 2008, compared to 36.6% for the first quarter of fiscal 2007. This brings our first quarter net income to $18.7 million for fiscal 2008, versus $12.2 million for fiscal 2007, an increase of 53.5%.

Our press release also included a balance sheet as of May 3, 2008, which included the following. Inventory of $74 million, which was up about 5.3% from inventory of 70.3 million at the end of the first quarter of fiscal 2007. And total cash and investments of 259 million, which compares to $248.4 million at the end of fiscal 2007, which would have been our February 2, 2008 date, and that also compares to $192.7 million, at the same time a year ago. As of May 3, 2008, our total cash and investments included $73.3 million of auction rate securities, and that compares to $145.8 million of auction rate securities held as of February 2, 2008. The auction rate securities are reported at fair market value, and at the end of the first quarter the reported investment amount is net of a $1.1 million reserve, to account for the temporary impairment of certain securities from their stated par value. The reserve has resulted in the reporting of accumulated other comprehensive loss of 0.7 million in the stockholders equity section as of May 3, 2008. There was no such reserve as of the end of our fiscal year February 2, 2008. Of this 73.3 million in the auction rate securities as of the end of the first quarter, $17.1 million have been classified in short term investments, and $56.2 million are classified as long-term investments.

We also ended the quarter with $104.3 million in fixed assets, which that number is net of accumulated depreciation. Our capital expenditures for the quarter were $7.6 million, and depreciation expense for the quarter was $5.1 million. For the quarter, our units per transaction increased approximately 1%. The average transaction value increased approximately 7%. And the average unit retail increased approximately 6%. The Buckle ended the quarter with 374 retail stores in 39 states, compared to 353 stores in 38 states at the end of the first quarter, fiscal 2007. With the opening of one new store subsequent to the end of the quarter, we currently operate 375 retail stores in 39 states. And 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 highlighting the performance from our various merchandise categories that led to our 32.4% net sales increase. The men's merchandise sales for the quarter increased approximately 38%. Highlights were denim, woven and knit shirts, active apparel, and accessories, each of which experienced double-digit sales growth. Our average denim price points increased from $70.70 in the first quarter of fiscal 2007 to $76.15 in the first quarter of fiscal 2008. For the quarter our men's business was approximately 45% of net sales, compared to approximately 43% last year, and the average men's price points increased 7.5%, from $41.10 in the first quarter of fiscal 2007 to $44.15 in the first quarter of fiscal 2008.

Women's merchandise sales for the quarter increased approximately 28%. Highlights were denim, knit tops, active apparel, and accessories, each of which experienced double-digit sales growth. The average denim price points increased from $75.55 in the first quarter of fiscal 2007, to $78.30 in the first quarter of fiscal 2008. For the quarter, our women's business was approximately 55% of net sales, compared to approximately 57% last year. And average women's price points increased 4.5% from $37.35 in the first quarter of fiscal 2007, to $39.05 in the first quarter of fiscal 2008.

For the quarter combined accessory sales were up approximately 24%, and combined footwear sales were down approximately 13%. These two categories accounted for approximately 7% and 5% respectively, of first quarter net sales, which compares to approximately 7.5% for each in the first quarter of fiscal 2007. Our average accessory price points were up about 5%, and average footwear price points were down approximately 6%. For the quarter, denim accounted for approximately 42% of sales, which compares to approximately 42.5 in the first quarter of last year. Our private label business was down slightly, as a percentage of net sales, for the quarter due to the strength and variety of selection in our branded merchandise, but continued to represent slightly under one-third of our sales. As Karen mentioned total inventory at the end of the quarter was up approximately 5%, but our total mark-down inventory at the end of the period was down compared to the same time a year ago.

During the quarter we opened seven new stores, including our first two stores in the state of Maryland. We closed one store and completed two substantial remodels. At the end of the quarter, 156 of our stores were in our newest format. For the full fiscal year, we now anticipate opening 20 new stores, including two stores during fiscal May, seven for back to school, and four for the holiday. We also still anticipate completing 13 substantial remodels in total during the year. Based on this, we still expect our fiscal 2008 total capital expenditures to be in the range of 30 to 32 million. And with that we welcome your questions. Thank you.

(OPERATOR INSTRUCTIONS) We have a question from Thomas Filandro, SIG, please go ahead.

A couple of questions, congratulations. Amazing quarter. Dennis, question on the denim. I think I heard you correctly the price points on denim both men's and women's were up, but the category held. I'm kind of curious in denim, what are you seeing there? Are you seeing higher price, meaning are you delivering higher pricing, is it less mark downs, or is there a mix shift going on, that's driving the continuation of improved pricing in that category?

I think we've expanded our brands at higher price points. We expanded our inventory of MEK denim from a year ago, our Big Star denim. Price points are pretty consistent, maybe up a little from a year ago, but still nice selection there. And then we've had a few smaller brands at higher price points that we've also sold, so for the most part the prices are going up, and I think our mark down, as I remember, is pretty similar from a year ago. But I'm not, I don't know if Karen can add something on that part of it.

I believe you're right there, Dennis.

Yes, okay.

Any variance in, I mean obviously, you guys had such a strong comp, but I'm assuming Karen, you didn't give the number, but you said it was up an average that transaction value of seven, I'm assuming the balance of the comp transactions were up meaningfully in the quarter.

Right.

Did you experience any regional variances at all in the business? If you did, can you describe what you are seeing?

I don't think any stand out areas, Tom, or anything that you can think of there, there weren't any, geographically, areas that stood out differently higher or low.

So the economic environment is challenging everybody else and not impacting you guys whatsoever at this point?

Fortunately we've seen where, if we have a factor that there is a store that is not doing as well as some of the others, it's usually due to the manager being inexperienced or not doing the job.

And two other quick ones. E-commerce updates , what has the performance looked like there? And are you testing any new product, new brands, sizing, anything like that going on in the E-com

Our E-commerce has been very good, and we continue to add selection to it, or sample out probably more colors or styles in certain categories than others, but for the most part it's the selection that we have in the store. We have a bigger selection of gal's swimwear than we do in the store. But for the most part that's the case, and we've been clearing some sale product through there, which has also been beneficial.

Inventories, I think, Karen, you said were up 5.3. What were they, that's balance sheet inventories. Were they on a per square foot basis, and how should we view per square foot inventories heading into back to school and holiday?

On a per store basis I think inventory was just slightly down from a year ago, but on a go forward basis I will turn that over to Dennis.

Well, we expect our inventories will be up. My best guess would be same store probably in the low single, low to mid single digits. It's a little hard to judge just if we continued the current pace, then they might not stay up where we thinking.

Any change in momentum in transaction thus far in May?

Yeah, we won't talk about May at this time, Tom.

I had to give it a shot. Congratulations and best in continued success.

Thank you.

Our next question is from the line of Gary Lennof, Ironworks, please go ahead.

Thank you. Can you provide us with the same color in terms of tops for the quarter, tops and sweaters for the quarter, what percentage of sales it was, what the growth was, and the price points?

Do you have that, Karen?

We do have that information. We don't usually get specific into each of those categories of tops, but the wovens and knit shirts were both up strong double digits.

Can you break it out into 10Q, can you tell us what percent of sales it was in Q1?

Sure, let's see, about 36 percent of sales were in tops for the first quarter.

That's up pretty meaningfully, year over year?

Yeah, a year ago it was 32%.

Can you just give me a little color in terms of what you attribute that success to?

I think we've added some new brands and a wider selection, and the knit business has been especially good in branded t-shirts, and we've expanded our selection within the brands, as well as adding additional brands and just receiving very nice selling on that category.

Great. Thank you very much.

You're welcome.

Our next question is from the line of Anna Andreeva, JP Morgan. Please go ahead. Thanks so much. Good morning, guys. Good morning, Anna. Congrats on a good quarter. I had a couple of questions. My first question is on SG&A. You guys delivered, despite some pretty strong comps, and I'm assuming incentive compensation was a big part of it. Could you maybe talk about how we should think about SG&A, as we go through the year? Was there anything else unusual, in especially that selling expenses bucket, and any color on what kind of comp do you guys need to get leverage in selling expenses?

Well, in the selling expenses on the incentive compensation, incentive compensation is driven off of growth in three categories. It's growth in our comparable store sales, growth in gross margin, and growth in pre-tax pre-bonus net income. And so with the strength of this first quarter, compared to the first quarter a year ago, that incentive compensation accrual was up. Now that's going to vary every quarter, depending on the performance in each of those three categories, so we really can't give direction on that, because it all depends upon the performance both top line margin and bottom line. I think we have gained some very nice leverage in the selling expense. I think as we talked about there, some of the increases were particularly offset by reductions in store payroll expense. I think especially as we've seen increases in minimum wage and just continued pressures in how we pay our people, I think that managing the budget is ours at the store. We've done our store teams and our sales management teams have done a very nice job of providing leverage in that store payroll expense, especially with everything going on right now out in the economy. So I think that they continue to look for areas to improve their - -

Okay. That's helpful. You guys don't look at kind of a minimum comp that you may need, just on the overall SG&A bucket to get leverage there?

No, we don't.

Okay. That's helpful. Then my second question, just looking at your merchandise margins, obviously a very nice improvement, continued nice improvement, even with the private label being down slightly. Would you maybe talk about what's driving that, and any more opportunities to drive your merchandise margins as we go through the year? I know you Guys do the collaborations with the brands, is that part of the business growing and lifting your merchandise margins?

Well, I think we have improved margins through just better sell-throughs with some of our key brands, and we have let's mark-down product at this time that has also helped. But just slightly better margins on some of the categories, and some opportunities of specials that we've been able to pick up through our vendors that have also given a little boost.

And how big is that collaboration with the vendors piece of the business right now, as a percent of sales?

How much is our branded business, Anna?

No, when you do the collaborations with your vendors, essentially your blended private label, if you will?

We work for the best price and then we price it accordingly to the amount of fashion we add, the uniqueness, or what is the appropriate value of that product for our guest, so it can vary per item on how we determine the margin.

Right. Okay. And then as you talk about the remodels, you've been seeing pretty nice increases in sales, as you do a remodel. Any color you can give us in your comps in the remodeled stores, versus the rest of the chain? That would be helpful.

We didn't break that out, did we, Karen?

No, Dennis, we did not.

I'm sorry, you know, some of the our remodels we usually get a nice boost of business, but it can vary from store to store, depending on if we move location or what level of business they are at when we do the remodel.

Okay. Sure. And then finally just on a merchandising side of things, Dennis as you look out to back to school, any opportunities you feel from last year, where maybe you lost the business and you feel good about this year, you mentioned there are some new brands that you Guys have, any brands you can discuss that you are especially excited about for back to school?

You know, on a lot of our new, - - I guess most of our brands are consistent with what we've been running with the past three to six months.

We are continually testing some new brands, and some of them, the turn time is pretty quick, so as we are shopping even next week and first part of June we might be adding some new brands, but nothing that we could tout right now. Well thanks so much. Good luck, Guys.

Thanks, Anna.

Next question, David Berman, Berman Capital, please go ahead.

Hi, guys. Amazing results. One of the things that just strikes me, rather than anyone who looks at your numbers, is just a remarkable management on your inventories.

Thank you.

And I was just wondering if you could embellish upon that, how you've managed to have such incredible increase in sales, along with such flattish inventory growth? It's quite remarkable and it must be, you must be working very hard on this, I was wondering if you could share some of your thoughts for us?

I think the key thing is we look at each category with our merchandisers and the merchandisers have been doing a great job, and for, say if it's denim, we look at each brand and plan out as far as we need to and work off that, but then a lot of the top business is a much shorter lead time, and we've been able to anticipate and react to new styles and colors. And we are continually working with key vendors on developing new products or special make-ups for us to keep it fresh, and so we've been working, we try to work, within our guidelines and we try to respond as quick as we can, and not do a longer lead time unless necessary. And fortunately the response of the product has been good and helped us keep that fast turn on that inventory.

Was there a change in your approach to things that suddenly improved? It was a massive improvement year over year.

I don't think it's so much as a change but just better execution.

All right. Okay. How long do you think this can carry on for that you can increase the terms?

Well, we've been just focusing on improving and being the best specialty store we can be for several years now, and we will take the same approach, so that's all we can - -

You Guys are moving towards being the best specialty store in America at this point. It's, so congratulations.

Thank you very much.

Outstanding. Thank you very much.

Our next question is from the line of Joel [Reval], Standard Pacific. Please go ahead.

All right. Thanks for taking my question. Dennis, could you share with us your philosophy on the capital structure? Currently you ended the quarter, it looks like with 259 million in cash or about $8.40 a share, and looks like you are going to generate another roughly $3.00 a share in cash, free cash, this year? Do you keep building the cash, do you increase capital spending or acquisitions, or is there an opportunity to return that to shareholders?

I think we review that at each board meeting of what our outlook is and what we see going in the market and the opportunities. We've always felt that working from strength is a big advantage with our vendors and our landlords, and that puts us in a position to take advantage of opportunities as they come up, and so in general that would be our thoughts. The extra cash, we will be discussing how we plan to work with that going forward.

You will discuss that on the next call or you mean you will be discussing that at the board level?

At the board level, sir.

Okay. Thank you.

Our next question is from the line of [Steven Cheung], MBF Capital. Great quarter. I'd just like to ask in denim and in tops, do you, going forward, do you think your private label percent will increase or decrease or stay the same?

I think it will be pretty consistent in the foreseeable future. Our business in fashion can change quickly, and as the brands are doing a real nice job and we are adding selection there, that will hold the percent of increase down on our private label, but we've been very happy with our private brand as far as offering good style and value, and it's still very successful in the store. But if we, we try to respond to what our guests are looking for and what's going to be, get the best sell through and approach it that way and not necessarily looking to say x% percent is going to be branded, x% is going to be private label.

One more question. In looking forward for your gross margin, is there more room for improvement in merchandise margin, or is there more room for improvement in leverage of occupancy and buying and so forth?

The merchandise margin has been very good and we are not promising more there. We will strive to do our best, but we are not saying that we can grow that, and Karen, do you have any comments on the other?

On the buying distribution occupancy, we look at that meeting at least a 2% comp to start to have leverage in that category, so obviously the top line growth is a big variable in providing leverage in those categories.

Great. Thank you very much.

At this time we have no further questions in queue.

Okay. Thank you.

All right. Thanks everyone.

See you, Karen, good bye.

Ladies and gentlemen, that does conclude your conference. We do thank you for joining and using AT&T executive teleconference. Have a good day.