Buckle Inc (BKE) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to The Buckle first quarter earnings release teleconference. 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 Secretary and General Counsel; and Tom Heacock, Corporate Controller.

As they review the operating results for the first quarter which ended May 2, 2009 they would like to reiterate the policy of not giving future sales or earnings guidance, and have the following "Safe Harbor" statement. The "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995. 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 any such forward-looking statements. Such factors include but are not limited to those described in the Company's filings with the Securities & 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. Additionally, the Company does not authorize the reproduction or (Inaudible) or transcripts or audio recordings of the Company's quarterly conference call, without its express written consent. Any unauthorized reproduction or recordings of the call should not be relied upon as information may be inaccurate. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions). As a reminder, this conference is being recorded.

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

Thank you. Good morning, everyone. Our May 21, 2009, press release reported that net income for the first quarter that ended May 2, 2009, was $26.9 million, or $0.58 per share on a diluted basis, and that is compared to $18.7 million or $0.40 per share on a diluted basis for the prior year first quarter that ended May 3, 2008. Please note that the prior year's earnings per share have been -- they have been adjusted to reflect the impact of our three for two stock split today that was paid in the form of a stock dividend on October 30, 2008.

Net sales for the 13 weeks first quarter increased 24.6%, to 199.7 million, compared to net sales of 160.3 million for the prior year first quarter. Our comparable store sales for the quarter increased 17.7%, compared to the same period in the prior year. Our online sales, which are not included in comparable store sales increased 75.7% to $11.7 million for the first quarter. Our gross margin for the quarter improved approximately 250 basis points to 43.4%. This improvement was driven by an increase in merchandise margins, which had about a 90 basis point impact, and by the leveraging of buying, distribution, and occupancy costs, which had a 160 basis point impact. The improvement in merchandise margins for the quarter was primarily a reflection of reduced markdowns as a result of strong sell-through on new product, which was partial live offset by an increase in redemptions through our Primo Card loyalty program.

Selling expense for the quarter was 18.8% of net sales which was a reduction of approximately 90 basis points from the first quarter of fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales in store payroll expense and payroll taxes, as well as by the leveraging of certain other selling expenses which were partially offset by an increase in expense related to the incentive bonus accrual, and increase in internet related fulfillment and marketing expenses, and investments made during the quarter related to certain store fixtures and store supplies.

Our general -- excuse me -- our general and administrative expenses for the quarter were 3.7% of net sales which was a reduction of approximately 50 basis points from the first quarter of fiscal 2008. The reduction was driven primarily by a reduction as percentage of net sales in equity composition and by the leveraging of certain other general and administrative expenses, and these improvements were partially offset by an increase in expense related to the incentive bonus accrual. Our operating margin for the quarter was 20.9%, compared to 17.1% for the first quarter of fiscal 2008. Other income for the quarter was $0.9 million, which compares to $2.3 million for the first quarter of fiscal 2008.

Income tax expense as a percentage of pre-tax net income was 37% for both the first quarter of fiscal 2009, and fiscal 2008. Bringing first quarter net income to $26.9 million for fiscal 2009, versus $18.7 million for fiscal 2008, an increase of 43.5%. Our press release also included a balance sheet as of May 2, 2009, which included the following. Inventory of $82.8 million, which was up approximately 12% from inventory of $74 million at the end of the first quarter of fiscal 2008. And total cash and investments of $249.3 million, which compares to $237.8 million at the end of fiscal 2008, as well as comparing to $259 million at the same time a year ago. We also ended the quarter with $127.0 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $14.9 million, and depreciation expense was $5.5 million.

We expect our fiscal 2009 capital expenditures to be in the range of 44 to $48 million, which includes budgeted capital investments related to the expansion of our online fulfillment infrastructure, within our current warehouse and distribution facility in Kearney, Nebraska, as well as replacement of our current point of sale software and hardware. Our newly expanded online fulfillment center is schedule to go live the first week of June and the expansion will approximately double the size of our existing infrastructure. We are also moving forward in the processing of evaluating the ability of our current distribution center to support the anticipated growth of our business over the next several years, but we would anticipate that the majority of any capital expenditures related to a new distribution center would not be made until fiscal 2010 or later.

For the quarter, our units per transaction increased approximately 2%, the average transaction value increased approximately 8%, and the average unit retail increased approximately 6%. The Buckle ended the quarter with 392 retail stores in 40 states compared to 374 stores in 39 states at the end of the first quarter of fiscal 2008. With the opening of one new store subsequent to the end of the quarter, we currently operate 393 retail stores in 40 states.

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

Thank you, Karen. Good morning. I would like to start by highlighting the performance from our various merchandise categories that lead to our 24.6% net sales increase. Men's merchandise sales for the quarter increased approximately 11.5%, highlights were denim, woven and knit shirts and active apparel. Average denim price points were increased from $76.15 in the first quarter of fiscal 2008 to $83.90 in the first quarter of fiscal 2009. For the quarter, our men's business was approximately 40.5% of net sales compared to approximately 45% last year, and the average men's price points increased 9% from $44.15 in the first quarter of fiscal 2008 to $48.05 in the first quarter of fiscal 2009.

Women's merchandise sales for the quarter increased approximately 35%. Highlights were denim, knit tops, active apparel, accessories and footwear. Average denim price points increase from $78.30 in the first quarter of fiscal 2008 -- excuse me -- to $85.10 in the first quarter of fiscal 2009. For the quarter our women's business was approximately 59.5% of net sales compared to approximately 55% last year and average women's price points increase 5.5% from $39.05 in the first quarter of fiscal 2008 to $41.10 in the first quarter of fiscal 2009.

For the quarter combined accessory sales were up approximately 28% and combined footwear sales were up approximately 19%. These two categories accounted for approximately 7% and 5% respectively. Of first quarter net sales which compares to approximately 7% and 5% for each in the first quarter of fiscal 2008. Average accessory price points were up approximately 2.5%, and average footwear price points were up approximately 7.5%.

For the quarter, denim accounted for approximately 41.5% of sales, and tops accounted for approximately 36.5%, which compares approximately to 42%, and 36% for each in the first quarter of last year. Our private label business was down just slightly as a percentage of net sales for the quarter due to the strength and variety of selection in our branded merchandise but continues to represent approximately 28% of sales. As Karen mentioned total inventory at then of the quarter was up approximately 12%, but our total markdown inventory at the end of the period was down compared to the same time a year ago.

During the quarter we opened six new stores, including our first store in the sate of New York, closed one store, and completed six substantial remodels. As of the end of the quarter, 193 of our stores were in our newest format. For the full fiscal year, we still anticipate opening 21 new stores, including one store which is already open in fiscal May, 8 for back to school, and 6 for holiday. We also still anticipate completing 21 substantial remodels in total during this year.

And with that we welcome your questions.

(Operator instructions). And our first question will come from the line of Anna Andreeva with JPMorgan. Please go ahead.

Hi, good morning. Congrats, guys on a great quarter.

Thank you.

First to Dennis, could you talk about your men's business? Obviously it has been pretty strong for a while, and I know a lot of that has been driven by the knit tops. Is that category slowing now? And do you see any fashion trends for men's right now? Obviously you are lapping a pretty strong comps in this category, just how should we think about men's for the next few quarters?

Well, we are pretty happy with our men's business. I think the knit tops in dollars continued to grow last quarter, and we're pleased with our inventory mix, and we were going against some very strong numbers a year ago with our growth in men's, and still feel good about our men's business.

Are you guys discovering any new fashion trends out there? I know at hardy, trend has been very strong for you. Anything new coming on the horizontal?

I think, you know, if you see our website, you'll see a selection of new brands, and new -- new ideas, but in general, our T-shirt business continues to be very good.

And could you also talk about the women's? Obviously that has been very strong and out comping men's for a while now. I guess any thoughts there? Any new brands to call out private label penetration there?

My best could be that the private label would continue to be pretty consistent just because it is growing but the brand selection we add and putting in the stores has also had very good response, so it's keeping that down. But our team is doing a very nice job of developing fashion knits and looks in the top category, and -- and that was a strong part of our sales for this last quarter.

Got it. And Karen, obviously on SG&A, pretty nice surprise there to see this level of leverage. I'm assuming it has a lot to do with the higher incentive comp accrual for last year. Can you guess simular leverage for the next few quarters assuming your comps hold out at this level?

I guess at this point we wouldn't give any guidance towards future quarters on leverage.

Okay. Maybe break down the components of that SG&A leverage once again?

Sure. On the SG&A -- part of that was from actual store payroll and payroll taxes. It was from just leveraging some of the other cost components of that. Some of that -- the leverage was offset by -- we did have increased costs related to our net fulfillment and marketing expenses, and again, with the strong quarter, the incentive bonus accrual continues to play a part of that as well.

But it sounds like there wasn't anything unusual in SG&A this quarter? And again, there is nothing preventing you guys from seeing similar leverage, assuming similar comps?

Again, I -- you know, I can't --

Okay.

I can't --

Okay. That's okay. That's helpful. And I guess just listening to a couple of retailers, so far reporting earnings, a few people have talked about weaker May so far, with I guess Mother's Day business being disappointing. Obviously you guys are not a Mother's Day designation, but any color on maybe how May started? And are you doing anything differently from promotional standpoint versus last year?

Okay. Again, but sorry, we can't give any guidance as far as our sales for the month of May. The one promotion we do have going that was kicked off at the end of April was a sweeps stake with Billabong, where the grand price is a wakeboard boat that will be given away, and in connection with that sweeps stakes, there is also a T-shirt on the guys side, and a tank top on the gal's side that was purchased with purchase. It is free or is it just purchase with purchase on that one.

I think with purchase, they can get a free T-shirt while they last. And I don't believe we had any promotion a year ago. I forgot to check that.

I believe you are right, Dennis.

And then finally, Karen, on inventories, obviously great management of inventories there. How should we expect inventories to shake out, maybe at the end of Q2?

Dennis, I guess I'll defer that question to you.

My best guess is that we will probably continue in this high single-digit, low double-digit increase at that time.

Okay. Thanks so much. Good luck, guys.

Thank you very much.

Thank you.

And your next question will come from Margaret Whitfield with Sterne Agee.

Good morning.

Good morning.

Last month you did a great comp overall, but the men's business -- the sales gain was much than that of the women's, and price was a big factor where as price was not a factor at all in women. Can you elaborate on the differences between the two, Dennis? What is going on in men's versus women's?

I think we had very strong business a year ago in men, and great growth in several of our categories, and we continue to have good denim and knit business and top business, and our guys casual shorts, they were all very solid on top of strong gains. And there was some new denim price points that were a little higher. I think a lot of the shirts, and probably shorts price wise were consistent. And on the gal -- price points very similar to what we were doing a year ago, and so the -- the -- although their denim price points were up, pretty much in the range of the men's. So I think, you know, any gal's swimwear, the top shorts, were probably all pretty much in the same price points as the denim that had an increase.

I don't have the numbers in front of me, was May last year also difficult in terms of comparisons for men? Was at it strong month last year like April was?

Yes, it was Margaret. May was very strong on guy's side.

Okay. And then in terms of back to school, any incite you can give us in terms of timing of the floor set? Any changes that you have in mind? I guess there are a lot of states moving their tax free weeks in to Q3 from Q2. Have you factored that in to your planning?

As always we continue our strategy of bringing in fresh new products steadily through our stores, and continually, and we'll take the same approach this year. I mean, it is only a matter of a couple of days or a week that there is a difference, so it would not change how we approach this season.

Okay. So you are not affecting -- expecting any effect from tax free changes into Q3 that it might impact your Q2 which in favor Q3 this year? I mean, do you have an effect from any changes from tax free weeks in years past?

What I was saying is it won't change how we approach the back-to-school season. Karen do we have any comments on the tax free?

I know Tom has looked at the numbers, and the shift in those weeks, and do you know approximately how many states, Tom?

I think there are about 10 states where the back-to-school shifts a week later. Then looking at last year's numbers, if it would have shifted last year, I think we would have thought it would be a low single-digit impact. So pretty minimal.

Okay. And Karen, can you break out the incentive comp impact on selling and G&A in terms of basis points for Q1?

We maybe great that out in our Q. I don't think we are ready to break it out today.

Okay. Dennis did you see any changes in geographic patterns, Midwest, Texas, any of the other areas you are in, in terms of the performance overall.

I don't think we saw any changes different from our pattern for a period of time now. I would say it's overall pretty consistent.

Okay. Very good. Thanks, and good luck.

Thank you.

Your next question will come from Edward Yruma with KeyBanc Capital Markets. Please go ahead.

Thanks very much for taking my question. I noticed your payables leverage was at an all-time high, and was up significantly year-over-year, was that the result of inventory being in check or was there something else transcribe in the quarter?

On our payables?

Right.

I think it was the timing on the flow of the merchandise, and there was a lot of new arrivals of product in the month of April.

Got it. And I know you mentioned the headwinds fro higher Primo Card redemptions, can you give us some color on exact hit to gross margin and when you lap that?

The Primo Card is an ongoing program, so as we continue to gain loyal guests, I think the usage of that Primo Card has continued to gain momentum, so it could continue to grow, but I think -- Tom, was it about 23 basis points on the shift from the Primo Card?

Yes. That's right.

Okay. And finally, have you been able to secure lower rents at any of your existing locations? Or are you finding a more favorable rent environment for your new stores you opening this year? Thank you.

I would say your real estate is working well. We are creating a lot of opportunities, getting some -- some of our rents -- might be improved to a degree, and other situations we're getting premium malls in very good locations at very, very fair market values, so we're very happy with our real estate situation.

Great. Thank you very much.

Thank you.

Your next question comes from Linda Tsai with MKM Partners.

Yes, hi. Can you talk about your success in the denim category and maybe what has evolved in the components of the business over the past year, and are there certain brands or styles where you are seeing particular strength?

I'm not going to call out certain brands for competitive reasons, but we have continued to expand our selection of brands and fits, and -- and I think we have expanded the age of our guests, a wider range of ages that shop our stores, and we have a multitude of fits. Just in our own brand, we probably have seven our eight fits on the gal's size, and half a dozen on the men's minimum that will have different fits, and that our associates do a great job of helping guests find the right fit, and build off of that, and the stores are using denim fit cards to hand out to guests on which fits they would enjoy, so it makes their shopping easier, and I think which ear getting world of mouth so we have been able to build that business with our customers by just having a great offering, and great fits and quality among our selection.

Great. And then what is the borrowing environment like right now? Would you consider it more favorable now versus last year? And then maybe any color in terms of what you are hearing from your vendors? Are they seeing a pickup in the second half of the year, or are they seeing order delays?

I don't know of any delays, and really haven't asked them how they are viewing the future business. I mean, we're focused on our business, and developing new product and working with exclusive items on a lot of things, and so we're pleased with what we have going with our vendors, and really, haven't searched out a lot of information what they are doing with others.

And would you consider the buying environment more favorable now versus last year?

I think last year was pretty good as far as -- for the buying situation. I would say for the most part it would be consistent with this year, if not slightly better.

Great. Thanks very much.

Thank you.

Your next question will come from Liz Pierce with Roth Capital Partners.

Good morning, congratulations.

Thank you.

Do you find it somewhat counter intuitive that the private label wouldn't be inching up in this environment? And that would speak to the power of brands, and your ability to add a lot of scram in to the product?

Yes, I mean, we're focused on growing our private label, and looking to improve that always, but we're always focused on delivering the product. We any our guests are going to want and desire, and right now there's several good things going on with the brands, and so, you know, that's just taking the growth out of the private label at this point.

Okay. Do you guys -- I don't remember, do you disclose on your denim what is private label versus branded?

Well, our BKE brand is our private label brand.

I know that, but like percentage?

Oh. I think we did at the end of the year, I think 38% of our denim sales were from BKE; is that correct, Karen?

Correct, it was about 40% the year before that.

Yes.

Okay. Okay. Thanks. So I know you didn't want to talk about which particular brand of denim is selling, but what about perhaps we can back in to it on the average price, but are you seeing a real dispersion between the high and the low, more selling, is it in the mid-until am I making myself clear? I don't know if I asked that very well.

I think I know where you are going. As I mentioned our private label brand is good, and that's in the 60s to 70s. Our cash -- our other brands, kind of in the -- I don't know if you want to say in the higher 80s to the 110s are doing well, and we're having a pretty good run on the -- on the brands that are 120 plus at this time as well, so I wouldn't say it's equal between them, but we have got a nice balance at this point.

Okay. And then -- I mean, just really -- if you think about what other retailers are saying and telling us, and we're seeing, it is somewhat -- you are atypical from everyone else. Is it just the -- how great the salespeople are to up sell them, working on the fit, the presentation, the outfitting, a combination of all three?

I think it's a combination of several factors. We -- we spent a lot of, you know, probably like a lot of people, but I think we, our history with denim and people know us as a denim designation, and we do a great job fitting the product, and we have a lot of excellent washes in the denim and -- and details, and so we just -- our focus is to kind of be the favorite denim designation for our guests, and we have been able to build on that, and that's what we will continue to try to do.

Okay. And the stores -- I wanted to just clarify on the -- it's 21 for the entire year?

That is correct. Yes, you are right, Liz.

And so then -- so you have already opened 6, you said you have one additional, so that gets you the 14 as a remainder. Okay. I just wanted to -- and are these in any additional new markets for you this year, or are these all backfill?

We're opening up in New Jersey, I think back-to-school, so that would be our 41st state.

Okay. Great. Good luck guys.

Thank you.

Your next question comes from the line of Laura Champine with Cowen.

This is John Curran for Laura Champine.

Okay.

The comp trend has been obviously pretty incredible. Are there any changes to your brands or fashion that could lead to more volatile performance over the near-term, either better or for worse?

As I mentioned, for competitive reasons, we're not going to get in to our brands, but we're going to continue focus on delivering new denim, assortment of tops and complementary items for those categories, so our strategy of delivering a steady flow of new product has not changed, and so, you know, that's -- that's where we're heading.

Okay. Thank you.

Sure.

(Operator instructions). Our next question comes from the line of Ann Poole with Stephens, Inc.

Hello, your online sales in the first quarter represented around 6% of your total revenue. What is your target for online as a percentage of total sales?

I don't know if we have set a specific target for that. We just continue to look for ways to grow and expand that business, and -- and that's why we added to our fulfillment center, so we would be prepared that whatever level of growth we receive on that.

Will you be using online a little differently this year for back to school to reach your customer?

We'll have -- we'll invest a little bit more money in to the marketing of our internet, but it will be somewhat on the same approach as last year.

Okay. And then I know you can't talk specific, brands and those kinds of things, but in terms of just bigger picture for back to school this year, what do you see as the key driver of your business in terms of product classifications. I mean, it seems like your accessories and footwear business are really growing. Are there any major shifts you see for back-to-school this year?

I would say that it would be pretty consistent with what is going on now with our business, and -- and, you know, still be focused on new denim product and tops and -- and the other categories as well. I don't see any big changes there.

In terms of the new denim, are you seeing any major shifts in trend in terms of, you know, washes, detailing, silhouettes?

I think one thing that has been good for our business is we have a pretty good selection of washes and different silhouettes, so we can be appealing to pretty wide range of guests, and so, you know, for the most part we probably expanded our fits and leg silhouettes from a year ago, so we think we'll be having a good presentation for back-to-school.

Okay. And then how are your smaller markets been doing relative to your larger markets? Are you seeing any difference in brands and trends that are selling in the more rural locations versus the larger cities?

I would say overall what is very good in the larger markets or very good in the smaller stores, maybe some of the smaller stores would not sell the same price points as maybe some of the metropolitan areas, but overall some of the same looks are both good, and -- and our BKE brand is also very good in the smaller markets.

Okay. And then just one last question, in terms of -- do you give your inventory per square foot?

Do you have that, Karen, or --

I don't have it with -- I don't have it with me, but that is the number that we can give out.

Okay. Thank you.

Thank you.

Speakers there are no further questions from the phone lines at this time.

Okay. Thank you, everyone.

Thank you.

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