Buckle Inc (BKE) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to The Buckle fourth quarter earnings release. For the conference today, all the participants are in a listen-only mode. However, there will be an opportunity for your questions, and instructions will be given at that time.

(Operator Instructions).

As a reminder, the call is being recorded.

Members of The Buckle management on the call today are Dennis Nelson, President & CEO; Karen Rhoads, Vice President of Finance and CFO; and Tom Heacock, Corporate Controller. As they review the operating results for the fourth quarter, which ended January 30th, they would like to reiterate their policy of not giving future sales or earnings guidance, and have the following 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 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, and 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 dissemination of transcripts or audio recordings of the Company's quarterly conference calls without its express written consent. Any unauthorized reproductions or recordings of the call should not be relied upon, as the information may be inaccurate.

With that being said, I will turn the conference over to Mr. Dennis Nelson. Please go ahead, sir.

Good morning, and thanks for joining us on the call today.

Before we review the results for the quarter, I would like to take this opportunity to express my appreciation to our talented Buckle teammates for their contributions to such an outstanding year. We are pleased with our results for both the quarter and the year, and know that it is the quality of our people and our products that drive our results and make it all happen.

With that, I will turn the call to Karen Rhoads.

Thank you, and good morning, everyone.

Our March 11, 2010 press release reported that our net income for the fourth quarter, ended January 30, 2010, was $42.1 million or $0.90 per share on a diluted basis, and that compares to $34.3 million or $0.74 per share on a diluted basis for the prior year fourth quarter that ended January 31, 2009. Our net income for the 52-week fiscal year ended January 30, 2010, was $127.3 million, or $2.73 per share on a diluted basis, and is compared to $104.4 million or $2.24 per share on a diluted basis for the 52-week period that ended January 31, 2009. Net sales for the 13-week fourth quarter increased 9.2% to $274.4 million, and that compares to net sales of $251.4 million for the prior year fourth quarter. Our comparable store sales for the quarter increased 3.8% compared to the same period in the prior year.

Our online sales, which are not included in our comparable store sales, increased 35.6% to $18 million for the fourth quarter. Net sales for the 52-week fiscal year ended January 30, 2010 increased 13.4% to $898.3 million, and that compares to net sales of $792 million for the 52-week fiscal year that ended January 31, 2009. Our comparable store sales for the fiscal year increased 7.8%, and our online sales for the year increased 45.2% to $52.3 million.

Gross margin for the quarter improved approximately 110 basis points to 47.2%. This improvement was driven by an increase in merchandise margins, which had a 140-basis point impact, and by a reduction in expense related to incentive bonus accrual, which had a 20-basis point impact. These improvements were partially offset by an increase in buying, distribution and occupancies, which had about a 50-basis point impact.

For the fiscal year, gross margin improved approximately 120 basis point to 44.6%. This improvement was driven by an increase in merchandise margins, which had about a 100-basis point impact, by a reduction in expense related to the incentive bonus accrual, which had about a 10-basis point impact, and by the leveraging of buying, distribution and occupancy costs, which also had about a 10-basis point impact. The improvement in merchandise margins for both the quarter and the year was primarily a reflection of reduced markdowns, as a result of strong sell-throughs on new products, which was partially offset by an increase in redemptions through our Primo card loyalty program. The increase in occupancy costs during the third and fourth quarters was primarily the result of increased percentage rent in stores with strong year-to-date sales performance, increases in common area maintenance costs, and additional depreciation expense related to new fixture roll-outs.

Our selling expense for the quarter was 18.4% of net sales, and that was a reduction of approximately 20 basis points from the fourth quarter of fiscal 2008. For the fiscal year, selling expense was 18.8% of net sales, which was a reduction of approximately 30 basis points from fiscal 2008. The reductions for both the quarter and full year were driven primarily by reductions as a percentage of net sales, and expense related to the incentive bonus accrual and store payroll expense, and by the leveraging of ceratin other selling expenses. These improvements were partially offset by an increase in internet-related fulfillment and marketing expenses.

General and administrative expenses for the quarter were 4% of net sales, which was a reduction of approximately 110 basis points from the fourth quarter of fiscal 2008. The reduction was driven primarily by a reduction as a percentage of net sales in expense related to the incentive bonus accrual, and reductions in the certain other general and administrative expenses. For the fiscal year, general and administrative expenses were 3.6% of net sales, which compares to 3.8% for fiscal 2008. Excluding the prior year $3 million gain related to the involuntary disposal of one of the Company's corporate aircraft, general and administrative expenses for fiscal 2008 were 4.2% of net sales. This 60-basis point reduction was primarily driven by a reduction as the percentage of net sales in expense related to the incentive bonus accrual, as well as reductions in certain other general and administrative expenses.

Our operating margin for the quarter was 24.8%, compared to 22.3% for the fourth quarter of fiscal 2008. For the fiscal year our operating margin was 22.2%, which compares to 20.5% in fiscal 2008. Again, excluding the $3 million gain on the aircraft in the prior year, our operating margin for 2008 was 20.1%. Other income for the quarter was $1.4 million, which compares to $1.7 million for the fourth quarter of fiscal 2008. And other income for the fiscal year was $3.7 million, compared to $7.8 million for fiscal 2008.

Income tax expense as a percentage of pre-tax net income was 38.9% for the fourth quarter of fiscal 2009, compared to 36.9% for the fourth quarter of fiscal 2008; bringing fourth quarter net income to $42.1 million for fiscal 2009, and that compares to $34.3 million for fiscal 2008, an increase of 22.7%. For the full year, income tax expense was 37.6% of pre-tax net income for fiscal 2009, compared to 36.7% for fiscal 2008; bringing our fiscal 2009 net income to 127.3 million, versus $104.4 million for fiscal 2008, an increase of 21.9%. The increased tax rate for both the quarter and for the fiscal year was attributable to a reduction in our tax-free interest earned on the Company's cash and investments, and to a lower deduction related to employee gains recognized on stock options exercised.

Our press release also included a balance sheet as of January 30, 2010, which included the following. Inventory of $88.2 million, which was up about 5% from inventory of $84 million at the end of fiscal 2008. And our total cash and investments were $230.8 million, which compares to $237.8 million at the end of fiscal 2008. As of the end of the year, inventory on a comparable store basis was down just slightly, and our total markdown inventory was down compared to the same time a year ago. The decrease in markdown inventory was the result of a decrease in the 50% off category, and it was partially offset by increases in the 20% and third-off categories. We also ended the year with $146.6 million in fixed assets, net of accumulated depreciation.

Our capital expenditures for the quarter were $15.9 million, and depreciation expense was $7.3 million. For the full year, our capital expenditures were $50.6 million, and depreciation expense was $25.1 million. The fiscal 2009 capital spending was broken down as follows. $35.1 million for new store construction, store remodels and store technology upgrades; and $15.5 million for capital spending at the corporate headquarters and distribution facility, which includes the expansion of our online fulfillment infrastructure that was completed in June of 2009, and payments that have been made as work is progressing on new distribution center, currently under construction in Kearney, Nebraska. We expect our fiscal 2010 capital expenditures to be in the range of $65 million to $70 million, which includes our planned new store and remodeling projects, the planned replacement of our current point-of-sale software and hardware, and the completion of our new distribution center. As an update, we broke ground on a 240,000-square foot distribution center in September of 2009, and we are still targeting a completion date of July 2010.

For the quarter, our units per transaction were flat. The average transaction value increased approximately 5%, and average unit retail increased approximately 5%. For the fiscal year, UPTs were up approximately 2%, the average transaction value increased approximately 6.5%, and the average unit retail increased approximately 4%. Additionally, during the fiscal year we increased our average sale per square foot from $401 in fiscal 2008 to $428 in fiscal 2009. And we increased our average sale per store from $2.0 million in fiscal 2008 to $2.1 million in fiscal 2009. With the closing of four stores in January, Buckle ended the fiscal year with 401 retail stores in 41 states. That compares to 387 stores in 39 states at the end of our fiscal 2008 year.

And at this time, since Dennis is traveling and calling in remotely, I would like to turn the call over to Tom Heacock, our Corporate Controller.

Good morning, and thanks.

I would like to start by the highlighting the performance from our various merchandise categories that led to our net sales increases of 9.2% for the fourth quarter and 13.4% for the full fiscal year. Men's merchandise sales for the quarter were up just slightly, on top of growth in 13.5% and 24.5% in the fourth quarter of each of the past two years. Positive categories on the men's side were denim, woven shirts, outerwear and footwear. Average denim price points increased from $81.85 in the fourth quarter of fiscal 2008 to $88.50 in the fourth quarter of fiscal 2009. For the quarter, our men's business was approximately 41% of net sales, compared to approximately 44.5% last year, and the average men's price points increased approximately 4% from $53.30 to $55.35.

For the full fiscal year, men's merchandise sales were up approximately 1.5%, on top of growth of 25.5% and 20.5% for each of the past two years. Positive categories on the men's side was denim, woven shirts, active apparel, outerwear and footwear. Average denim price points increased from $79.85 in fiscal 2008 to $86.70 in fiscal 2009. For the full fiscal year, our men's business was approximately 39.5% of net sales, compared to approximately 44% last year, and the average men's price points increased approximately 6.5% from $47.65 to $50.70.

Women's merchandise sales for the quarter increased approximately 16%, on top of growth of 28% and 13.5% in the fourth quarter of each of the past two years. Highlights were denim, woven and knit tops, sweaters, accessories and footwear. Average denim price points increased from $86.60 in the fourth quarter of fiscal 2008 to $93.10 in the fourth quarter of fiscal 2009. For the quarter, our women's business was approximately 59% of net sales, compared to approximately 55.5% last year, and average women's price points increased approximately 5% from $44.65 to $46.75.

For the full fiscal year, women's merchandise sales increased approximately 22.5%, on top of growth of 29.5% and 14% for each of the past two years, and again highlights were denim, woven and knit tops, sweaters, active apparel, outerwear, accessories and footwear. Average denim price points for the full year increased from $83.35 in fiscal 2008 to $90.35 in fiscal 2009, and for the full fiscal year our women's business was approximately 60.5% of net sales, compared to approximately 56% last year, and the average women's price points increased approximately 4% from $41.10 to $42.85.

For the quarter, combined accessory sales were up approximately 7.5%, and combined footwear sales were up approximately 14.5%. These two categories account for approximately 8.5% and 4%, respectively, of fourth quarter sales in both 2009 and 2008. Average accessory price points were up approximately 2.5%, and average footwear price points were up approximately 12.5%. For the full fiscal year, combined accessory sales were up approximately 13.5%, and combined footwear sales were up approximately 17.5%. These two categories accounted for approximately 7.5% and 4.5% respectively of net sales in both 2009 and 2008. Average accessory price points were down just slightly, and average footwear price points were up approximately 9.5%.

For the quarter, denim accounted for approximately 46% of sales, and tops counted for approximately 36.5%, which compares to approximately 43.5% and 39.5% for each in the fourth quarter of last year. For the full fiscal year, denim accounted for approximately 43% of sales, and tops accounted for approximately 36.5%, which compares to approximately 41.5% and 39% for each in fiscal 2008.

Our private label business was up slightly as a percentage of net sales for both the quarter and for the year, and represented approximately 29% of net sales for the year. In addition to our own BKE denim, which was approximately 36% of our fiscal 2009 denim sales, key denim brands for the year included Big Star, Big Star Vintage, Miss Me, MEK, Rock Revival and Silver Jeans, in addition to several others. Other key brands included Hurley, Billabong, Affliction, Sinful, Archaic, Obey, 7 Diamonds, Roar, Fox and Fossil.

During the fourth quarter we opened one new store and completed five substantial remodels, bringing our count for the full fiscal year to 20 new stores and 22 substantial remodels. As of the end of the fiscal, 222 of our stores are in our newest format. We anticipate opening 20 new stores during fiscal 2010, including six which have already opened, five additional for Spring, eight for Back-to-School and one for Holiday. The new stores opened already this year include locations in North Wales, Pennsylvania; Austin, Texas; Bellevue, Washington; Cherry Hill, New Jersey; Fairview, Texas; and Orlando, Florida. We also anticipate completing 25 substantial remodels during fiscal 2010, and by season we anticipate 11 of the remodeled stores will be completed for Spring, ten for Back-to-School, three for Holiday, and one for post-Holiday.

With that, we welcome your questions.

(Operator Instructions).

First, we'll to the line of Adrienne Tennant with FBR. Please go ahead.

Good morning, and congratulations. My question is on the SG&A, Karen, or actually the G&A piece of it and then separately the selling expense. Should we think about -- I mean, it was down substantially over last year. Should we think about that as similar going into Q1 and Q2, or -- like when would be bonus accruals kind of kick back in?

Secondly, on the selling expense growth, can you give us any color as to whether we should think of the dollar growth there also being in the high single-digit range? Thank you.

On the general and administrative expenses for the bonus and incentive accrual, as we had talked about in some of the past quarters, last year, fourth quarter, we did have a true-up for the year, because our fiscal 2008 ended stronger than where we had projected at the end of the earlier quarters during the year. So bonus was higher for fiscal 2008, because it was all driven based on growth in three different categories, and growth was -- percentage-wise was stronger in fiscal 2008, so there was a greater bonus accrual, but also more of it fell in the fourth quarter, because there was a true-up in the fourth quarter of fiscal 2008. And for fiscal 2009, as we said, our projections for each quarter, we fell pretty much in line with where those were so were, so there wasn't the true-up in the fourth quarter. I hope that helps explain that, Adrienne.

Is there -- sorry, excuse me. Is there any way you can help us kind of quantify that delta, maybe in basis points or dollars, maybe? The change from the fourth quarter of 2008 to -- did you quantify how much the true-up portion of it was last year, maybe?

No, and last year it would have been combined, the actual accrual as well as the true-up.

Right.

But for the fourth quarter, the portion of the bonus accrual that goes to general and administrative expenses was down about $1.5 million from a year ago.

Okay, great. So, should we kind of look at -- how should we think about the first half SG&A? Dollar gross?

For selling expenses, really a lot of that ends up being variable with sales, so I guess we don't have any guidance to provide you on where that selling expense will be.

Right. Okay. Then the G&A piece of it, maybe up kind of how it was in the third quarter, of mid single-digit dollar gross? Is that a better proxy?

Again, could not -- we don't give specifics on that.

Okay. And then any color on the new markets, and how those stores are doing? Any color maybe on their four-wall contribution versus the chain?

Dennis, I don't know if you want to talk about the new stores?

Well, last year we were pleased with our new store openings, and so each market can vary and be different, so we don't have any general comments there. This year, we've only had new stores open a couple of weeks or so, so it is much too early to estimate or project how they might do this year.

Okay. Great. Thank you, and good luck.

You're welcome. Thank you.

Thanks. Next to line of Thomas Filandro with SIG. Please go ahead.

Congratulations, nice job again. Karen, first question for you is the buying, distribution and occupancy I think you said was up 50 bips. Can you help us understand what the leverage point is on comps to leverage that piece? And I am kind of curious if you can you tell us maybe how many stores are currently in the percentage rent category versus a year ago? Then I have two other questions, please.

All right. Well, on the occupancy cost, we did -- kind of as we mentioned, with the rollout of quite a few fixtures over the couple years, there was some additional depreciation expense related to the fixture rollout, as well as the increased number of remodels during the year, which accounted for some of the increased depreciation expense, as well. Then for the common area maintenance, I think we've continue to see some increases in that category a little bit out of the norm. So we -- historically, we have seen kind of a mid single-digit comp has been able to provide leverage to occupancy costs.

But again, I think with some of the items that flow through this year that wasn't the case, because there were some extra costs in there that maybe on a normalized year would not have been there. So I think we would still say mid single-digit comps to get leverage on that.

Is it fair to assume that some of those factors will ease a bit, or are we expected to -- are we cycling against the increases in [CAM] charges and the depreciation effect? Obviously, you continue to add remodels, so how should we think about -- do you still think a mid single-digit comp gives you leverage?

On the common area maintenance, sometimes that's actually a little bit difficult to engage, because it depends on what's going on each of those malls, if they are ramping up security, if they are doing some improvement to the mall. This year with snow removal, my guess is we'll see some continued increase in common area maintenance charges with extra snow removal in many areas of the country. So as we start getting those billings in in the next few months, we will be able to have a little bit clearer picture of how the common area maintenance charges will be adjusted.

The second part of my question was, I don't know if you have this, but can you give us a sense of how many stores are tapping into percentage rent, and how that compares to a year ago, if you happen to have that number?

You know, I did not bring that exact number but we did see an increase in the number of stores paying percentage rent. But even more than that, stores that were -- seemed like a lot of our strong performers for fiscal 2009 were stores that were already paying percentage rent, and so they just continued to pay additional percentage rent, and we made some landlords pretty happy in some of those stores.

Did you give us a per square foot number on the inventory at year end?

I think think you just said it was slightly down on comp stores, correct?

Correct.

Is it fair to assume that is just how you guys will continue to manage the inventory level for the balance of the year?

I would think we would continue to take the same approach we have been, but my guess is we would get the comp stores probably up in a low single digit's increase on their inventory on the end of most quarters.

Dennis, since we have you, can you give us maybe a couple of highlights on the BKE Black and ReClaim, how they are performing currently to date, please?

The BKE Black, we have only had a couple of jeans in and they performed pretty well. We have done that stepped-up label on some woven shirts. Here again, not a big selection, but that has sold very well. And ReClaim is still is a very small part of our business but gives us a very nice basic jean at $39.50, and the reception of that has been very good.

One final one, if I may, UPTs I think you said were flat for the quarter, I believe. I am pretty sure February UPTs were up. Is there something trend-wise that we should know about in terms of UPT, why we saw that variance?

A little bit. I think the fourth quarter was impacted by -- in January a year ago, we had the Affliction promotion, with a T-shirt give away. So for the fourth quarter, January was the month that brought units per transaction down a little bit, because we had a lot of those either reduced price or give away T-shirts in January a year ago. Tom, I don't know if you can think of anything else in the fourth quarter, but --

That was the main driver of why it was flat for the fourth quarter.

Is there any other events like that that you will compare against in 2010 that we should be aware of?

We did have an event with Affliction, again, last year, in July of 2009, and it was a fight promotion. That was the fight that about a week into our promotion the fight was canceled. So, again, we finished the promotion and did award the sweepstakes and had the T-shirts, but I don't think it was as strong a promotion as the January one, would you say, Dennis?

That would be correct, yes.

That is right, the fight was canceled because of -- they were taking steroids, right?

Yes.

That's a surprise, isn't it guys? Good luck to you all, thanks.

Our next question is from Nicole Shevins with Goldman Sachs. Please go ahead.

Hi, thanks, good morning. My first question was on average unit retail. You know, you continue to show gains there, with AUR up in the mid single digits for the fourth quarter. So I wanted to see if you could talk about what is driving it, and how we should think about incremental AUR opportunities for the rest of the year?

Last year we had added Rock Revival as a denim election, Big Star Vintage, and a lot of those price points were in the $135 to $150 area, and I think that added to the process. We continued to sell men's woven strongly in the $70 to $90 area, and the denim was both men's and women's on those brands. And then also our buyers and merchandisers put in some BKE -- what we call BKE boutique lines, which were a little better goods and a little higher price points than our average tops, and those sold well. Outerwear was pretty good of course, last year, both men's and women's. So I think it is just a combination of different brands and categories where the product warranted better price points, and were successful at retail.

Great. Then just a question on promotions. It looks like with leaner inventories, some retailers are being more vocal with promotions this season to drive traffic. Are you guys planning anything differently in terms of promotional cadence for Spring to drive traffic and transactions? Thanks.

No, we are not planning any price promotions. We have our Spring event, which starts next week. Last year it started this week, where it is kind of an event to encourage people to try on our new shorts, swimwear, tops for the gals, and with purchase they can receive a vendor bag or one of our bags, kind of a fun event. Then there are some prizes that they can register online. So it is very similar to last year. I think that is the only thing we have planned at this time.

Great. Thank you.

You're welcome.

And we will go to Edward Yruma with KeyBanc. Please go ahead.

Thank you for taking my questions. Back to the performance bonuses. I know that, Karen, you said there are three distinct buckets by which your performance bonuses are based off of. Can you give us at least a rough outline of the performance needed in 2010 for you to accrue at the maximum level?

It varies at every level, so there isn't -- I mean, I guess there really isn't a maximum. Growth in comparable store sales; so if there is no growth, nothing goes in there. But then it varies if comps are up 3% or 10%; that is just a calculation based on the growth of the comparable store sales. The next one is growth in gross margin; and, again, very performance-related on that incentive. And the third category is pre-bonus, pre-tax net income. The gross margin and the pre-tax -- pre-bonus, pre-tax net income, those are on a three-year rolling average, with the most recent year having the heaviest weighting in that average. So, again, the Compensation Committee of the Board of Directors has that set up so it is an incentive for growth, and so I guess I can't really state during the year, because it will vary based on performance.

Got you. And can you -- with some of the success with the BKE denim line, can you talk about where private label penetration is today, and how much that kind of contributed for gross margin for the year? Thanks.

That would probably be pretty consistent with last year, too, wouldn't you say, Karen?

Right, private label as -- overall, private label as a percentage of overall sales was up just slightly. I think as a percentage of denim, it might have been down just slightly.

Great. Thank you.

Next we will go to with Anna Andreeva with JPMorgan. Please go ahead.

Thanks. Good morning, guys. First, I guess to Karen, I was hoping you could quantify the impact of the Easter shift into March. I know your business typically doesn't get affected as much by the shift as most other teen retailers, just given the older consumer, but should we expect maybe 3 to 4 points benefit to March, and give some of that back in April?

We think it is probably a couple basis points in there, so somewhere in the low -- wouldn't you say, Tom, low to mid single-digit there.

Okay. Got you. Then to Dennis, I was hoping you could talk about the men's business. You saw some improvement last month, and you are starting now to have easier comparisons in knit tops. So maybe what some are the trends you are seeing in men's, and do you think this could be a positively comping category for you guys in 2010?

I think as we mentioned after last month, the denim business continues to improve. The woven business has been very good. The short category, looks like that will be good this season. We see knits continuing to -- I guess we would look at that probably in the 2nd quarter, where that will compare more favorably going forward, possibly sooner.

It just sounds like there's still plenty of drivers to get to possibly positive comps in 2010 and then --

Yes, we feel good about our men's business, and look forward to this year on the men's size.

Great. Finally, any regional differences you are seeing in the business? Other retailers have called out Texas being a little softer lately, and I know you have a big penetration there; but then conversely, California and Florida have been improving. Are you seeing that in your business, as well?

Texas is still a very good state for us, so we haven't really seen any weakness there. And in most situations, I would say we are consistent with the other retailers out in California and Florida.

So you are seeing some sequential improvement recently?

Correct.

Great. Thank you so much. Good luck.

Thank you.

And we will go to Margaret Whitfield with Sterne Agee. Please go ahead.

Good morning, and congratulations. I guess this is for Dennis. In February, your denim business improved to about 49.5% of the mix, which I think is a high level. I wondered if you are seeing this business continuing to be strong for you, and gaining in the mix versus the tops?

I think we feel very good about our denim business, and think it will continue to grow, but in February our inventory mix was probably weighted more to denim than in the other categories, so that probably made the denim percentage even larger than normal.

And how about price points? They have been rising nicely in denim; do you see that you're hitting a plateau, Dennis, or with some of these higher-priced brands do you see it continuing to move higher?

At this point, I would think they would be similar price points to a year ago.

Okay. And then wondered what you are seeing in terms of occupancy costs, as you look to the new stores that you are going to be opening this year?

Well, it is in the -- I mean we see kind of see, kind of in relation to the quality of the mall, definitely a prime center is going to be more expensive than a middle market or a B mall. So we see some increase in our rents in certain markets, and other markets we have some decreases. So -- but we feel for the quality of the center, and our situations, that our economics are good.

Okay. And anything you can share on sourcing? How you see that trending? I guess some have expressed the thought that costs may be rising in the back half of this year?

We haven't seen any big increases in our sourcing at this point. A lot of what we work with is with the details or uniqueness that, with some interest in price, in most cases we can offset that with a higher retail.

Okay. Thank you, and best of luck.

Next we will go to Linda Tsai with MKM Partners. Please go ahead.

Hi, good morning. Just to follow-up on the rent question. Looking at your rent per store for your new stores that you are opening, versus average rent for the rest of your store base, is this generally trending higher or lower?

I haven't compared it myself, specifically. But as I mentioned, you know, if we are doing an A-plus mall in a regional center, the rent is going to be higher than our average. But we have a mix of centers, and so I don't see a substantial increase in most of the centers. And based on the sales -- the sales-to-rent ratio, some of our -- in the past, some of our most expensive malls have been some of our best stores, so we don't see that as a big negative.

Okay. And then with some of the new systems you have in conjunction with the new distribution center, what kind of additional savings or efficiencies might there be from its implementation?

With the new distribution center, we will have some added technology that should facilitate the through-put of the good in the facility. So we don't think -- it may not happen initially when we first move in there, but definitely as we work out the bugs and get going in the new distribution center, we would hope to see some labor savings there.

Are there any kind of metrics you are trying to target, in terms of maybe getting inventory into stores faster by a certain day, number of days?

I think we do a great job right now. A substantial number of stores get freight in one day, and two and three days is the most from after it hits our DC, so I think we turn it very well.

So it is more about payroll and labor, maybe efficiencies there?

Yes, and just improved efficiency, so eventually maybe it would cut down on some distribution payroll expense.

Great. Thanks, and good luck.

The next question is from Lee Giordano with Imperial Capital. Please go ahead.

Good morning. I was wondering if you could talk a little about your remodel program. What exactly are you doing physically to the stores? You know, how much does it cost per store? And then maybe could you talk about the performance you are seeing in those stores versus your non-remodeled stores? Thanks.

When we talk about a substantial remodel, we are going in and redoing the entire store. So in most cases, we go in and demo what is there, and we build out the new store design so that looks just like a new store opening, and it costs about the same, too. In some cases, it may actually cost a little bit more if we have to do an in-place remodel. What we try and do is relocate to a temporary spot while we remodel the store. In some of those cases, we are able to actually pick up maybe some additional square footage during the remodel, which helps as well. So the remodels are costing in excess of $700,000 per store.

I will let Dennis speak to the performance, but overall we are -- looking at remodels from fiscal 2009, we were pleased with how those stores performed.

The growth on the remodels can vary, depending on if we improve our location, we add square footage, or just the maturity of the business before we remodeled, at what level they were. So we have either -- anywhere from single-digit gains to double-digit gains, but we have been very happy with the updates of the store.

And in some of the smaller markets, where it doesn't warrant the cost of that full remodel, we are able to go in and do some facelifts to those stores, which may be just replacing carpet with wood flooring, updating the fixtures that we've done over the past couple of years. So there are other ways that we update some of the stores, without doing a substantial remodel.

Great. Thanks a lot.

You're welcome.

And the next question comes from Elizabeth Montgomery with Longbow Research. Please go ahead.

Congratulations on the great year. I wondered if there was any variation in store-level productivity that you could talk about among stores in the base, maybe older stores versus newer ones?

No. We typically don't break that out, and give that information.

Is there fair to say there isn't a lot of variation then, or should we not necessarily assume that?

I think in the areas where we are a little more known by the guests and such, that the newer stores would start out very nicely, and that is a plus. If it is a newer market, we could get a little variance, as far as them getting to know us and our selection. But overall, we usually have a pretty nice start with a new store, because we are in good centers with good locations in the centers, and we promote our managers from within, and so that is helpful, as well.

Okay. And then, I apologize because I had to hop offline for a second, but when you said you were putting in a new point of sale system, when is that supposed to be into all the stores, and when do you start rolling that out?

Good question. We actually do not have a test going in the stores yet. There have been some delays with the software vender in their customization to get the software to our specifications, and so we are still hopeful that by April we will have a product that is ready to test in a number of stores. And depending upon how that test goes, if we can start doing some of the rollout prior to Back-to-school. You know, we are pretty careful with the stores, at not disrupting business by affecting the point of sale during Back-to-School or during Holiday. So, again, depending upon the timing and success of that test, how many of the stores will get rolled out this fiscal year, and some of them may even be pushed into after Holiday.

Thanks, guys, and good luck.

Thank you.

Next we'll go to Laura Champine with Cowen. Please go ahead.

I have a follow-up question on your [merge] margin performance, which was obviously really strong in the quarter, up 140 basis points. If denim price points kind of flatten out, what is the -- can you talk a little bit more about what drove that merge margin expansion in Q4, and kind of where you see it going from here?

Well, we are not promising higher margins, although we will continue to work to do so. But we feel that if prices level out, there might be certain situations where we can improve our sourcing to a degree; but for the most part, we feel that we are going to be working with the product and trying to satisfy our guests and give them the best new selection and such, and assume that the margin, and hopefully fewer mistakes, will continue to serve us well there.

Great. Thank you.

And we'll go to Bill Dezellem with Tieton Capital Management. Please go ahead.

Thanks. A couple of questions. First of all, relative to your e-Commerce site, do those online sales enhance your operating margins, or do they tend to be a drag on operating margins?

I would think they would be positive to margins.

And then the second question, we believe that early in the call you had mentioned that you have a new denim line that starts at $39, and we are curious -- I guess a couple different things. Number one, what is your strategy for bringing in the lower-priced point product? And then secondarily, how are you finding that the customer is responding to that? Are you bringing in folks who otherwise would not be interested in paying your price points? Or are you finding that your existing customers are trading down, or just not interested in the those? So I guess a lot of questions baked in there.

Yes. Well, we try it out in a variety of stores, and we find that in certain markets it is more important than others. But we don't really see our branded customers trading down. This is just in the men's area that we are doing this right now, but we find that there is guests that are just used to buying a lower-priced denim, that we get them started there, then we move them into other items in the store, as well as, you know, our sale customers will come in, and if there is not something on sale that they would like, that they might go with this. So it is -- for the most part, it's a different customer or somebody that will pick up a jean more for work and stuff instead of going out on a special occasion.

Thank you. And then the final question relative to that. You did mention that you are testing this in stores; do you ultimately believe that you will have a $39 starting point on the men's side across all stores, or will it only be in some stores when you are at your ultimate point?

Well, I am not sure how I commented earlier, but the ReClaim we have been toying with for a couple of years, and this last year we were able to source it where we felt very good about the quality and the fit and the price, and so we have had that in most stores at Holiday, and will continue to put it in the majority of stores going forward.

Thank you.

You're welcome.

And we will go to Mike Smith of Kansas City Capital. Please go ahead.

Good morning. Have the cranes arrived in Kearney yet?

They are arriving, yes.

Okay, just wanted to make sure. I know you have been around for a long time. You closed, what did you say, four stores in the quarter; so my question surrounds, how many stores do you have in your system that you consider closing, and where are you putting the new stores?

Okay. Well, the closing of the stores, usually when a mall is very weak, usually we are one of the last tenants to leave, and it is not a problem situation, or it is our lease-term is up; like in one city we had two stores, and the one mall wasn't strong enough, so we just focused on the one store there. But usually there are stores that have been -- we have been there for a number of years, and a lot of times we are either year-to-year or month-to-month, and then we get to a point where we don't want to invest money into it, so we close it, and we usually have another store that can take at least some of that business.

Then our new stores, we are kind of around the country this year; we have two or three, I think, in Ohio, we have two or three in Pennsylvania, maybe two in New Jersey, two in Florida, two in California, two in Texas. So they are kind of scattered through the 41 states that we are already in.

Well, thanks a lot.

You're welcome.

And to the presenters, no further question in the queue.

Okay. Thank you.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.