Buckle Inc (BKE) 2009 Q2 法說會逐字稿

Welcome to the second quarter earnings release. At this time, all participants are in a listen-only mode. Later there will be an opportunity for questions and an answer session; instructions will be given at that time.

(Operator Instructions)

Members of The 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 second quarter, which ended August 1st, 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 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 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 projected results expressed or implied therein will not be realized.

Additionally, the Company does not authorize the reproduction or dissemination of transcripts or audio recordings of the Company's quarterly conference calls without its expressed written consent. Any unauthorized reproductions or recordings of the calls should not be relied upon, as the information may be inaccurate.

I would lake to turn the conference over to our host, Miss Karen Rhoads.

Thank you, and good morning, everyone.

Our August 20th, 2009 press release reported that net income for the second quarter ended August 1st, 2009, was $25 million or $0.54 per share on a diluted basis, compared to $22.3 million or $0.48 per share on a diluted basis for the prior year second quarter that ended August 2nd, 2008. Our year-to-date net income for the 26-week period ended August 1st, 2009, was $51.9 million, or $1.11 per share on a diluted basis; and that compares to $41 million, or $0.88 per share on a diluted basis for the 26-week period ended August 2nd, 2008. Please note that the prior year's earnings per share have been adjusted to reflect the impact of our three-for-two stock split paid in the form of a stock dividend on October 30th, 2008.

Additionally, as highlighted in this morning's press release, prior year general and administrative expenses for the second quarter and year-to-date period were reported net of a $3 million gain from the involuntary conversion of one of our Company's corporate aircraft, which was destroyed in a tornado a year ago; and we converted that to a monetary asset upon the receipt of insurance proceeds. This gain had a $0.04 per share after tax impact on the reported basic and diluted earnings per share for both the quarter and year-to-date period.

Net sales for the 13-week second quarter increased 13.6% to $192.9 million, compared to net sales of $169.8 million for the prior year second quarter. Comparable store sales for the quarter increased 8.6% compared to the same period in the prior year. Our online sales, which are not included in comparable store sales, increased 39% to $10.1 million for the second quarter. Net sales for the 26-week year-to-date period ended August 1st, 2009, increased 18.9% to $392.6 million, compared to net sales of $330.1 million for the prior period 26 weeks ended August 2nd, 2008. Comparable store sales for the year-to-date period increased 13.1% compared to the same period of the prior year. Our online sales for the year-to-date period increased 56.4% to $21.8 million.

Gross margin for the quarter improved approximately 130 basis points to 42.7%. This improvement was driven by increase in merchandise margins, which had a 90 basis point impact, and by the leveraging of buying, distribution and occupancy costs, which had a 40 basis point impact. The improvement in merchandise margins for the quarter was primarily a reflection of reduced markdowns as result of strong sell-throughs on new product, which was partially offset by an increase in redemptions through our PrImo Card loyalty program.

For the year-to-date period, gross margin improved approximately 190 basis points to 43%. This improvement was driven by an increase in merchandise margins, which had a 90 basis point impact, and by the leveraging of buying, distribution and occupancy costs, which had a 100 basis point impact. The improve in merchandise margins for the year-to-date period was primarily a reflection of reduced markdowns as a result of strong sell throughs on new product, and again partially offset by increase by an increase in the redemptions of our Primo Card loyalty program.

Selling expense for the quarter was 19.4% of net sales, which was a reduction of approximately 30 basis points from the second quarter of fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales of -- in the expense related to our incentive bonus accruals, and by the leveraging of certain other selling expenses, which were partially -- excuse me, partially offset by increase in internet-related fulfillment and marketing expenses.

For the year-to-date period selling expense was 19.1% of net sales, which was a reduction of approximately 60 basis points from the same period in fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales, in-store payroll expense, and expense related to the incentive bonus accruals, and by the leveraging of certain other selling expenses, which were partially offset by an increase in internet-related fulfillment and marketing expenses.

General and administrative for the quarter were 3.5% of net sales, which compares to 2.1% for the second quarter of fiscal 2008. Excluding the prior-year gain related to the involuntary conversion of one of the Company's corporate aircraft, general and administrative expenses for the second quarter of fiscal 2008 were 3.8% of net sales. The 30 basis point reduction was driven primarily by a reduction as a percentage of net sales in equity compensation expense and expense related to the incentive bonus accrual, as well as the leveraging of certain other general and administrative expenses.

For the year-to-date period, general and administrative expenses were 3.6% of net sales, which compares to 3.1% for the same period in fiscal 2008. Excluding the prior-year gain related, again, to the involuntary conversion of the Company's aircraft, general and administrative expenses for fiscal 2008 were 4.0% of net sales. The 40 basis point reduction was primarily driven by a reduction as a percentage of net sales in equity compensation expense, and by the leveraging of certain other general and administrative expenses.

Our operating margin for the quarter was 19.8%, compared to 19.6% for the second quarter of fiscal 2008. For the year-to-date period our operating margin was 20.3%, compared to 18.4% in fiscal 2008. And excluding the $3 million gain on the corporate aircraft, our operating margin for the fiscal 2008 quarter and year-to-date periods were 17.9% and 17.5% respectively. Other income for the quarter was $1.5 million, which compares to $2 million for the second quarter of fiscal 2008. And other income for the year-to-date period was $2.5 million, compared to $4.4 million last year.

Income tax expense as percentage of pretax net income was 37% for both the second quarter of fiscal 2009 and fiscal 2008; bringing second quarter net income to $25.0 million for fiscal 2009 versus $22.3 million for fiscal 2008, an increase of 12.2%. Year-to-date income tax expense was also 37% of pretax net income for both fiscal 2009 and fiscal 2008; bringing year-to-date net income to $51.9 million for fiscal 2009 versus $41.0 million for fiscal 2008, an increase of 26.5%.

Our press release also included a balance sheet as of August 1st, 2009, which included the following. Inventory of $106.5 million, which was up approximately 3% from inventory of $103.4 million at the end of the second quarter of fiscal 2008. And total cash and investments of $228.5 million, which compares to $237.8 million at the end of fiscal 2008 and $278.8 million at the same time a year ago. We also ended the quarter with $132.1 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $11.2 million, and depreciation was $6 million.

Please note the beginning with the month of August, we will no longer be providing our inventory and markdown information on a monthly basis, and will only provide that information on a quarterly basis going forward. Given that the information we previously reported was only as of the end of the fiscal month, and could vary based on minor changes in timing and flow of merchandise, we believe it's more meaningful and appropriate to only provide such information quarterly along with our operating results.

We still expect our fiscal 2009 capital expenditures to be in the range of $44 million to $48 million, which includes budgeted capital investments primarily related to store projects, as well as the expansion of our online fulfillment infrastructure within our current warehouse and distribution facility in Kearney, Nebraska, and replacement of our current point-of-sale software and hardware. Our newly-expanded online fulfillment center went live in June, and the $5.5 million expansion approximately doubled in the size of our previous infrastructure.

We have also made the determination that a new distribution center is necessary to support the anticipated growth of our business over the next several years. We have purchased land in Kearney, and are currently working with architects, contractors and various state and local officials, and would anticipate beginning work on a new building sometime this fall. As we are still early in the process, no capital expenditures related to this project have been included in our estimated $44 million to $48 million for the year; and any capital spending related to this project that occurred in fiscal 2009 would be in addition to these estimates.

For the quarter, UPTs increased approximately 3%, the average transaction value increased approximately 7%, and the average unit retail increased approximately 5%. For the year-to-date period, UPTs increased about 2.5%, the average transaction value increased 7.5%, and the average unit retail increased approximately 6%. The Buckle ended the quarter with 401 retail stores in 41 states, and that compares to 381 stores in 39 states at the end of the second quarter of fiscal 2008.

With that, I will turn the call over to Dennis Nelson, our President and CEO. Dennis is visiting stores this week, and so he is out traveling and calling in from the road. Dennis?

Thank you, Karen. Good morning.

I would like to start by highlighting the performance from our various merchandise categories that led to our 13.6% net increase -- net sales increase for the quarter. Men's merchandise sales for the quarter decreased approximately 2%. Positive categories on the men's side were denim, woven shirts and active apparel. Average denim price points increased from $79.35 in the second quarter of fiscal 2008 to $87.60 in the second quarter of fiscal 2009. For the quarter our men's business was approximately 40% of net sales, compared to approximately 46.5% last year. The average men's price points increased approximately 8%, from $42.20 in the second quarter fiscal of 2008 to $45.60 in the second quarter of fiscal 2009.

Women's merchandise sales for the quarter increased approximately 27.5%. Highlights were denim, knit tops, active apparel, accessories and footwear. Average denim price points increased from $80.55 in the second quarter of fiscal 2008 to $89.30 in the second quarter of fiscal 2009. For the quarter our women's business is approximately 60% of net sales, compared to approximately 53.5% last year. And the average women's price points increased approximately 5.5%, from $35.75 in the second quarter of fiscal 2008 to $37.75 in the second quarter of fiscal 2009.

For the quarter our combined accessory sales were up approximately 20%, and combined footwear sales were up approximately 14.5%. These two categories accounted for approximately 8.5% and 5%, respectively, of the second quarter net sales, which compares to approximately 8% and 5% for each in the second quarter of fiscal 2008. Average accessory price points were down approximately 1.5%, and average footwear price points were up approximately 7.5%.

For the quarter denim accounted for approximately 35.5% of sales, and tops accounted for approximately 39%; which compares to approximately 35% and 41% for each in the second 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 25% of sales for the quarter.

During the quarter we opened nine new stores, including our first store in the state of New Jersey, and completed seven substantial remodels. As of the end of the quarter, 208 of our stores were in our newest format. For the full fiscal year we now anticipate opening 20 new stores, which includes five new stores remaining for the rest of the year. We also still anticipate completing 21 substantial remodels in total during the fiscal year, which includes three stores that have already moved back into the remodeled space in fiscal August, and five stores remaining for the rest of the year.

With that, we welcome your questions.

(Operator Instructions)

Our fist question comes from the line of Adrienne Tennant please go ahead. Adrienne Tennant, your line is open.

Hello?

Good morning.

Can you hear me?

Now I can, yes.

Sorry about that. Congratulations on the quarter. Karen, can you talk a little bit about the G&A dollar growth? It looks like you exhibited very, very good control on the G&A side, and on a dollar basis it was lower than the first quarter. So I'm trying to think if -- without giving us numbers or anything, can you just help us think about how we should look at that for the back half of the year? Should we look at that similar to Q2?

Similar in what respect?

In terms of dollar growth year-on-year? So excluding the $3 million gain last year, it looks like the G&A was up about 2.6% on a dollar basis. I'm just wondering if that's the type of dollar growth that we should expect? In Q1, it was up 10%. So it looks like your exhibiting some pretty tight G&A control, and I'm wondering if that's kind of a go-forward pattern that we should think about?

I guess I couldn't really state on that. I think, too, we have to look at -- the back half is a little bit different than the first half as far as the sale volume, and so anything that comes in connection with that we have to take into consideration.

Okay. Can you remind us last year, kind of the build in Ed Hardy and Affliction, and when it sort of peaked last year?

I'm not sure, Adrienne, if I remember specifically. I think we were still selling Ed Hardy t-shirts in select stores through at least the early fall, and probably at a lesser point at Holiday. But to be specific, I couldn't tell you.

Okay. Great. Then my final question is really, the denim newness, it looks like there is a lot more pocket treatment this year, especially on the women's side; do you think you can continue to drive the price points up by adding the embellishments that we are starting to see? Is that something that is more sustainable go-forward for Holiday?

I think our selection that we have now will be pretty consistent through Fall and Holiday, where we still have price points from the $60 range for the most part all the way -- excuse me, up through about $150, with a few exceptions over that. Based on selling the back-to-school and such, we will respond accordingly. But I would expect to see the same type of price points and type of inventory through the Holiday.

Okay. Great. Thank you very much, and good luck for the back half.

Thank you very much.

Thank you. Next we will go to the line of Margaret Whitfield. Please go ahead.

Good morning, everyone. Dennis, I wondered if you could amplify the issues that have restrained the men's side of the business, specifically the knit tops? And I'm wondering about how this new relationship with UFC might spark Affliction's business?

Well, I think our men's team overall is has done a good job of having regular-priced business through a difficult first six months because of strong comparisons a year ago. What I see from reports in the market it sounds like the men's business is very difficult for a lot of places. Last year we capitalized on some opportunities in the knit business that was excellent. We still feel that our knit business is -- we are very happy with it, and there's a lot of newness and good opportunities out there.

As far as Affliction, with their new alignment with UFC, we would expect likely to still have a couple of promotions a year, and that we would not really see this affecting what they are doing. I mean they have a great brand and have played off their network with the [fighters], but they're very good product people and do a nice job of newness, and so we have been very happy with their selection.

Any new brands coming down the pike that look like they could approach the size of an Affliction or an Ed Hardy, such as [Remity] or Rebel Spirit?

We are always shopping new brands, and testing and developing product with our core vendors. That's the most speculation we will do right now.

Any thoughts on store openings or added states next year?

I think next year we will be within the 41 states, and most likely we will continue to be probably in the 20 range of new stores, and maybe low to mid-20s on the remodeleds, depending on the opportunities.

Are you seeing any differences geographically in terms of recent sales trends? Midwest versus newer markets?

No, not specifically any consistent theme through there. Nothing to comment on that.

For Karen, I wondered why the decline in equity compensation expense and incentive comp in Q2? Could you quantify it?

Nope, we have not quantified it, and on the incentive compensation I think kind of as we've continued to try and talk about the -- you know, the incentive compensation is based on growth in three categories; growth in comparable store sales, gross margin, and pre-bonus pretax net income. So any time the growth in any of those categories slows down, the incentive bonus accrual is going to slow down, too.

Is it if only one of them slows that the incentive goes down?

Yes. Each of those growth categories contributes dollars into the incentive bonus.

Thank you.

You're welcome.

Next we will go to the line of Elizabeth Montgomery. Please go ahead.

Congratulations on the quarter.

Thank you.

Karen, I guess just following up on the last question, is there any way you can tell us what incentive comp was as a percentage of total sales for last year, all in?

Not off the top, I couldn't.

Okay. Then I guess can you guys talk maybe if there is a difference in productivity between the new store format and the older store format, and what that might be? And also whether there is a difference in productivity between Midwestern markets and some of the newer states, not in terms of recent comp trends but in terms of sales per square foot metrics?

I think a lot of the new stores, you know, are usually in larger regional markets than some of the previous existing stores, and so we are seeing nice sales productivity out of those. But each market can be a little different. It's very difficult to break down the different markets, because we have some very strong older markets as well.

Karen, do you have anything else to add on that?

No, I would agree with you on that, Dennis. I guess that's why we tried not to -- there isn't like a cookie cutter store that here is how we open and here is how it ramps up, because we are in a lot of different markets, and again Dennis mentioned some of our older markets do very well also.

Okay. Then, a final comment just on back-to-school; have you seen any change in the comp trends in kind of the earlier back-to-school markets relative to some of the later ones? Is there any discrepancy between those two, or is it still trending in August pretty much the same?

I'm sorry, but we can't comment until we release sales in two weeks.

All right. Worth a try. Thank you.

Our next question comes from the line of Anna Andreeva. Please go ahead.

Good morning, guys. I was wondering if you could address deceleration in your women's business in July. I know you talked about the lack of Affliction promotions that had some impact on the month, but I would have expected that to be more on the men's side. Could you maybe comment on that? Is that reflective of back-to-school happening later for your business? And without giving guidance, should we see some pick up in women's over the next couple of months? I guess what are you seeing in women's trend-wise, and what are some of the opportunities for the back half?

I think our ladies' business has been terrific, showing very nice growth, when I don't know that there is a lot of people out there showing any growth. I think some of the strength of the gains in the first quarter compared to the second would be due to maybe not as strong numbers to go against in '08 during first quarter, and that strengthened as we went on in the second quarter last year.

Okay, and what are you seeing trend-wise?

I mean through July there, we saw a nice response to our product and our gals' business through the first half of the year we thought performed very well.

Any, I guess, missed opportunities from last year that you think you could capitalize on this year? Any new brands to call out?

Outside our denim brands, most of our top and variety, and our outerwear and fashion categories, are for the most part private development, so I just think the team continues to do a nice job creating newness.

Okay. But private label in women's is growing?

I would say quite a bit of that is private label, and some of it is what we kind of have referred to in the past as blended private, where we are working with vendors developing special make-ups and exclusive product for us in our stores.

Okay. That's great. Are you guys doing anything differently this August promotion-wise, and what kind of impact should we see from a later Labor Day this month?

Promotion-wise, we have something with Hurley with the Jason Mraz for concerts, but it only affects about five cities and 30 stores, there's a little promotion, but it is not really product-driven or price-driven whatsoever. The Affliction promotion kind of ended at the first part of the month. So we really don't have anything special going at the moment over the next four to six weeks.

Okay. And Karen, to you, inventories look like in very good shape, how are you guys managing inventory levels in the back half?

I think in the back half we would see inventory levels in total probably up to that mid to high single digits; Dennis, would you agree to where you see inventory running?

Yes, I think that some of that depends on the flow of some of the deliveries and such, but we would expect it to be in that mid to high single digits for the most part.

Okay. Karen, also to you, it looks like looking at your gross margins, the occupancy gains decelerated a little bit from previous quarters. What kind of comps do you need to get occupancy leverage?

About a 2% to 3% comp to get that leverage.

Okay. I guess, Dennis, finally to you, given the new DC, are you reassessing the store potential? Could this be from 400 stores today to 500, 600 stores over time?

We would estimate the best we can that there would be the potential for the mid-500 range, but that is a bit of speculation. But we are in need of office space, storage space and other room, just to run our business efficiently and continue to grow, so that's the motive I have for the new DC.

Great. Good luck for back-to-school and back half.

Thank you very much.

Thank you. Our next question comes from the line of Tom Filandro. Please go ahead.

Thank you, and congratulations as well, great quarter. One question, Dennis, the denim business, pricing up as much as 10% in men's and 11% in women's; can you give us a better understanding of what is going on there? Is it a reduction in markdowns? Are you seeing better brands, better pricing on the branded side, the private label side? What can you tell about those -- those big jumps?

I think part of it is due to less markdowns of some denim carryover. But also we have added some -- Big Star has a vintage line that prices from the $120s to $150, that has had some impact. We continue to sell Mack at that price point. We are testing other items and categories anywhere from the $110s to $130s. We had very few stores we have 7 Denim in, which is over the $150. We have some men's product, some Affliction jeans that are over $150. So it's not necessarily an all-store basis at those price points; but we if the product is right, our guest is looking for newness and willing to pay if they see the fit and value for that garment.

Great. Maybe can you give us a sense, Karen, on how should we think about the IMUs go-forward?

I don't see any real big change in that going forward.

Okay. Then just a quick final question, I think this was asked indirectly, but in terms of the tax-free shifts, do you have any sense on what impact that had in the second quarter?

Bottom line, I guess we didn't go back and re-look at that again, Tom, but we did -- we had about a 3% impact on comps for the four-week period of July, but we didn't go back and quantify what that meant to the bottom line.

Okay, so a 3% impact on July. Clearly you've got some shifts going into August, but you also have a later Labor Day. Have you guys done any analysis on how that plays out, August, September, in terms of impact on the business?

We've looked that a little bit. But that is harder to judge based on -- we don't track all of the different school starts and when colleges -- the starts there. And so we know that it will have an impact, and we will kind of look at our August, September timeframe together internally as we look at it.

Thank you very much, and best of luck to you.

Thanks, Tom.

Thank you. Our next question comes from the line of Liz Pierce. Please go ahead.

I will add my congratulations. Just Karen a little bit, to go back on the IMU, you said, so the merchandise margins were up 90 basis points; how much of that was IMU?

I don't think that we ever give that information out.

Okay. So just in terms of on the sourcing, are you guys getting some of the benefit that we are hearing from other retailers, just given your buying power?

I think in certain categories there's opportunities, but still the fashion kind of drives it, and depending what is going on in the market can make a difference where that initial mark-up is.

Then just a housekeeping question, Karen, when you gave the CapEx and depreciation, was that year-to-date or was that quarter?

That was for the quarter.

For the quarter, okay. What do you expect depreciation to be for the year?

For the year probably about $24 million, $25 million.

Okay. Circling back on the question about new stores, you weren't speaking about remodels; you were talking about actual new stores?

Are you referring for next year or this year?

Oh no, no. The productivity, sorry.

Oh, the productivity?

Yes. I think the question was about productivity on new stores versus some of the existing stores, and I was curious about how the remodeled stores, if you look back to the ones that you remodeled in the past two years, are doing?

I would say it kind of varies some of the stores were very established when we did remodel them, but needed to be freshened up to stay competitive. But in most cases we see some very nice sales gains and growth in new stores, with the remodels and the freshness of the fixtures and such.

On the selling costs if I'm looking at this -- I realize it will obviously grow as the sales the volume -- as we move into heavier volume. Are you doing anything on your payroll -- store payroll, just given the volatility that we've seen? Is that where some of the benefit might be coming from?

In store payroll, that's an area that our sales management team really tries to stay on top of. That's a particularly tough area in times when the comps slow a little bit, too, to really stay on top of that scheduling and manage that. We also had another minimum wage increase go into effect towards the end of July, which -- we increased some of the starting basis for our teammates in the store who are paid at a base plus commission. So it's an area that continues to be addressed and looked at very closely on an ongoing basis, but as far as -- at this time, I don't think that we would be able to commit to how much improvement, if any, there would be in the back half of the year, because part of that is impacted by the top line and, again, just managing the hours budgeted per store.

What is your average lead time on product? Just thinking about your comment on inventory up in the mid to high single digits; if business started to flex better than that, how quickly can you get product into the stores?

Well in our -- in a lot of our junior categories and men's knits, we are probably looking at an average of six to eight weeks; sometimes it's sooner than that, but that's probably a pretty good guideline. And a lot of our denim now is 90 to 120 days out. Naturally some of the outerwear or the import items would be the -- four or five months, depending on the category.

I think the rest of my questions have been asked. Thank you and good luck.

Next we will go to the line of Linda Tsai. Please go ahead. Linda Tsai, your line is open.

Okay. We will go to the line of Laura Champine. Please go ahead.

Good morning. You commented a little bit about brands and fashion on denim, what you are seeing, but can you comment more generally about fashion for back-to-school and how you are positioned? And also on the denim brands, does it seem like you might continue to see private label tick down as a percentage, given the new things you are doing there?

Private label I think will hold pretty close; I mean, with the price points of some of the brands, it could tick down slightly, but I wouldn't see a big change there. But I think the teams have done a nice job of assorting the stores with -- the outerwear category looks good from both the men's and women's, the vest has been working well in fashion-type items. And maybe a little bit more balanced mixed of wovens and sweaters with the knits, instead of as heavy in knits as we have been.

And then again on the SG&A leverage question, can you give us how much of SG&A expense is variable versus fixed?

A large portion of the selling expense is variable, and the G&A definitely is more fixed outside of the incentive compensation component. I guess that's kind of why we break those -- instead of lumping that all together, we do break out selling separate from G&A, because selling is definitely more variable.

Got it. Thank you.

Thank you. Next we will go to the line of Dana Telsey. Please go ahead.

Good morning, everyone. Can you talk a little bit as you expand into other areas like New Jersey, what are you seeing different in terms of performance or customer base in those stores than what you see elsewhere? And as you think of your gross margin going forward and the increase in the price of denim, is there more gross margin opportunity with higher-priced denim, or how do you see that evolving? Thank you.

I think at this point what we've found in some of the newer markets is the guests are very receptive to our selection and our service, and so we've been pleased with that. On the higher price point denim, the initial mark-up is probably consistent with most of our other brands, and naturally less than our private label.

Thank you.

Our next question comes from the line of Kevin Foll. Please go ahead.

Hi, guys. Can you talk about the inventory, I guess again a per square foot basis, how you think about that in the second half of the year?

We break down our categories and how we want to -- you know, the selection that we want to do for each category and kind of build it from there. But I would imagine our strategy is going to be consistent with over the past year, where we try to react and keep a flow of product and be careful with inventory, but continue to bring in new product and go after the sales the best we can without getting over-exposed on the inventory.

Got it, thanks. The bulk of your incentive comp accrual typically occurs in the fourth quarter? Is that kind of the true-up quarter, you typically see that?

Correct.

That's all I had.

Thank you.

Our next question comes from the line of Edward [Ruema].

Thank you for taking my question. Just a quick comment or question on the G&A. Was there any incentive comp accrual reversal during the quarter, given the trends have [distorted] slightly, or -- and was that really responsible for the downtick sequentially when I look at the G&A number?

When we look at that bonus accrual, we are always looking at it on a year-to-date basis and looking at -- projecting where we are going to be for the quarter. So each period we are basing -- it's a year-to-date accrual, so there might have been true-up in the second quarter from estimates in the first quarter, but it wouldn't have been a really big difference.

Got you. And I believe you are going to begin to cycle when you notice an uptick in Primo Card redemptions; has that accelerated, and should that be a continued gross margin headwind as we head to the back half of the year? Thanks.

I'm not sure if I can guesstimate that; part of that Primo Card, though, is our Buckle charge card business continues to grow, and we have certain reward incentives on that that are little more limited than our Primo Card but still is an opportunity for loyal guests to receive some gift cards from their business during certain periods. So that has a little affect. Do you have any comments on that, Karen?

No, I would agree with you Dennis.

Thank you.

Next we will go to the line of Margaret Whitfield. Please go ahead.

Most of my questions have been asked already, but I was wondering in September, given the later Labor Day, what you could tell us, Dennis, if you have any promotions planned for the month and if there were any last year at that time?

It seems like last year we might have had a tie-in with one of the band artists, but no big promotion, and I think we are working on a promotion with our Buckle charge card bank, that we will be doing a little something that could have some benefit. And we are continually working with different artists as possible tie-ins, but just kind of like the past where maybe we sell the CDs because the comps are just kind of -- ties in with the image of the brand and such, but it's not price promotional or any big discount-type things.

Okay. Thank you, and best of luck.

Next we will go to the line of Mike Smith. Please go ahead.

Good morning. Accolades to you guys as well. Three questions, here. The new distribution center you are going to break ground on this fall, about how big of investment is that, and when do you expect to move in, I guess?

We haven't put in the exact numbers on the capital expenditure for building; we are looking at over a 200,000 square foot building. And depending on when we can break ground this fall, the earliest we would move in would probably be July of 2010, again ground breaking and winter weather in Nebraska could play a big difference on when we can actually move into the facility.

I thought it was always balmy in Kearney?

The second question was, has there been change that you would like to speak to about your management turnover, or are you still the best place in town to work?

I think we are really excited about the people we have to work with at the executive level, and well as our store managers and a lot of teammates out in the stores. And outside of Jim Shada retiring in March, I think that has been the only change we've had for a period of time, correct Karen?

Correct.

So everything is going well there. On the remodels, I suppose the answer this question is, well, it varies a lot, is there an average customer remodel in terms of your CapEx?

A remodel really costs about the same as a brand new store, because we go in and pretty much demo what's there and build out the new store. In some of our smaller markets, Mike, we might not do a full remodel, but maybe redo some of the wall treatments and floor treatments, and then provide new fixtures, and that would be a smaller expenditure; but otherwise remodels would be the same as a new store construction.

Thanks.

You're welcome.

Next we will go to the line of Ronald Bookbinder. Please go ahead.

Congratulations, also. When you look at your merchandise mix for the fall, and given the strength of denim and price points involved, are you looking at the overall price points being up this fall, no matter what happens with Affliction or Ed hardy shirts?

You are asking if the denim prices will be up this fall?

No, I'm asking if the overall price points will be up this fall, given the strength of denim and their price points?

At this point I would guess they would probably be up low to mid-single digit.

Okay. Your inventory being only up 3%, and you are looking for the inventory in the back half of the year to be up, I think you said mid to high single digits at the end of the year; were you just above your internal plan as to why inventory is so tight right now? Or was there some sort of timing issue for the transition?

I think some of that depends on the delivery of some of the -- some of our major denim buys and such, that they could be off anywhere from one to three weeks or such, which could affect the flow.

We did have -- on the gals' denim, there was some early deliveries in July last year that came in early August of this year.

True.

Okay. And did you have any activity on your share repurchase plan, and when does that end? And given the invest in the new DC, will that affect any plans going forward on share repurchases?

We haven't purchased any shares. We didn't repurchase any shares during the quarter, we still have 799,000 shares available for repurchase. There isn't an expiration date on those. Per the Board approval, it's based upon the Executive Committee decision of when they feel that that purchase prices is accretive and makes sense for shareholders; and also, given the second part of your question, we do evaluate the overall cash needs, so looking at store expansion looking at distribution center expansion. As we talked about in the narrative also, we just completed in the second quarter our expansion of our online fulfillment center. So we do look at all of our operating needs, and decide as far as any buy back or other cash expenditures, how we would use the dollars best.

Okay, thank you, and continued good luck.

Thank you.

Next question will go the line of Linda Tsai. Please go ahead.

Yes. Hi, sorry about that earlier. Good morning. When you look at the denim in the various price points, the $60s to $70s, the $80s to $110s, and higher than $120, how did these various categories perform versus last quarter and then on a year-over-year basis? Dennis, I think you mentioned that the $80s to $110s weren't so great last quarter, but that the $120s were doing okay. Where do you see the most area of growth or slowdown?

I don't know that we've really analyzed it to that effect, Linda. We have been pretty happy with all our brands and our selection right now. So I don't see one that is necessarily underperforming or one that is overachieving from a different one. We've got a wide variety of guests, and they buy different brands and different price points at the same time, so I really don't see anything to break down from that.

Was the performance of the different categories sort of similar to last quarter?

Let's see. Trying to think from the second quarter to the first quarter. I would say for the most part they would be very similar, yes.

Are you looking to grow a particular area, or you're comfortable with how things are right now?

We are just very product-driven; we don't decide on the price point or any specifics when we go into shopping the market or developing product. We are very product-driven on how we proceed.

Then are there any new trends you could discuss for the second behalf of the year in denim that you are seeing or --

Not -- I'd rather not get into that, thank you.

Okay. Thanks very much.

Thank you. At this time, there are no further questions coming from the phone lines.

Okay, thank you.

That does conclude our conference for today. Thank you for your participation and for using the AT&T executive teleconferencing service. You may now disconnect.