Buckle Inc (BKE) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. 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 we review the operating results for the first quarter which ended May 1, 2010, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement and 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 and Exchange Commission. The Company does not undertake to publicly update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

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 call should not be relied upon as the information may not be, may be inaccurate. Please go ahead.

Thanks. Thank you, good morning. This is Karen. Thank you for joining the call. Our May 20, 2010 press release reported that net income for the first quarter ended May 1, 2010 was $30.1 million or $0.64 per share on a diluted basis. And this compares to $26.9 million or $0.58 per share on a diluted basis for the prior year first quarter, that ended May 2, 2009. Our net sales for the 13 weeks first quarter increased 7.6% to $214.8 million, and this is compared to net sales of $199.7 million for the prior year first quarter. Our comparable store sales for the quarter increased 2.8% compared to the same period in the prior year. And this was our 14th consecutive quarter of positive comparable store sales.

Online sales which are not included in comparable store sales increased 24% to $14.4 million for the quarter. Gross margin for the quarter improved approximately 10 basis points to 43.5%, the improvement was driven by an increase in merchandise margin which had a 55 point impact and by a reduction in expense related to the incentive bonus accrual which had a about a15 basis point impact. These improvements were partially offset by an increase in buying distribution and occupancy cost which had about a 60 basis point impact. The improvement in merchandise margins for the quarter was primarily a reflection of reduced mark downs as a result of strong sale through on new product, and a slight increase in our private label business. These improvements were partially offset by an increase in redemptions on our primo card loyalty program.

Selling expense for the quarter was 18.5% of net sales which was a reduction of approximately 30 basis points from the first quarter of fiscal 2009. The reduction was driven primarily by reductions of the percentage of net sales, in expense related to the incentive bonus accrual and store payroll expense which were partially offset by increases in expense related to store supplies, Internet related fulfillment in marketing expenses and health insurance claims. General and administrative expenses for the quarter were 3.5% of net sales, which was a reduction of about 20 basis points from the first quarter of fiscal 2009. The reduction was driven primarily by a reduction of the percentage of net sales, in expense related to the incentive bonus accrual.

Our operating margin for the quarter was 21.5% compared to 20.9% for the first quarter of fiscal 2009. Other income for the quarter was $1.8 million, which compares to $0.9 million for the first quarter of fiscal 2009. Income tax expense as a percentage of pretax net income was 37.3% for the first quarter of fiscal 2010 compared to 37.0% for the first quarter of fiscal 2009. Bringing first quarter net income to $30.1 million for fiscal 2010 versus $26.9 million for fiscal 2009, an increase of 12.1%. Our press release also included a balance sheet as of May 1, 2010 which included the following. Inventory of $84.7 million which was up approximately 2.5% from inventory of $82.8 million at the end of the first quarter of fiscal 2009. And total cash and investments of $236.1 million which compares to $230.8 million at the end of fiscal 2009's first quarter. I'm sorry, the $230.8 million was the end of fiscal 2009, and then $249.3 million at the same time a year ago.

As of the end of the quarter, inventory on a comparable store basis was down approximately 2.5% and total mark down inventory was up slightly compared to the same time a year ago. The increase in mark down inventory was the result of an increase in the one-third off category partially offset by reductions in the 20% and 50% off categories. We also ended the year with $158.5 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $20.7 million and depreciation expense was $6.5 million. Capital spending for the quarter was broken down as follows -- $9.6 million for new store construction, store remodels, and store technology upgrades, and $11.1 million for the capital spending at the corporate headquarters and distribution facility which includes payments made as work has progressed on our new distribution center which is currently under construction in Kearney, Nebraska.

We still expect our fiscal 2010 capital expenditures to be in the range of $65 million to $70 million. For the quarter, UPTs increased approximately 4.5%, the average transaction value increased approximately 8.5%, and the average unit retail increased approximately 4%. Buckle ended the quarter with 412 retail stores in 41 states compared to 392 stores in 40 states at the end of the first quarter of fiscal 2009. And now at this time, since Dennis is traveling and calling in remotely I will turn the call over to Tom Heacock our Corporate Controller.

Good morning and thanks for joining us. I would like to start by highlighting the performance of our various merchandise categories that led to our 7.6% net sales increase for the quarter. Men's merchandise sales for the quarter were up approximately 3% on top of growth of 11.5% and 38% in the first quarter of each of the past two years. Positive categories on the men's side included denim, woven shirts, active apparel and footwear. Average denim price points increased from $83.90 in the first quarter of fiscal 2009 to $89.70 in the first quarter of fiscal 2010.

For the quarter of our men's business was approximately 39% of sales compared to approximately 40.5% last year, and the average men's price points increased approximately 3.5% from $48.05 to $49.75. Women's merchandise sales for the quarter increased approximately 10.5% on top of growth of 35% and 28% in the first quarter of each of the past two years. Highlights include denim, woven tops, active apparel and footwear. Average denim price points increased from $85.10 in the first quarter of fiscal 2009 to $91.20 in the first quarter of fiscal 2010. For the quarter our women's business was approximately 61% of net sales compared to approximately 59.5% last year. And the average woman's price points increased approximately 8% from $41.10 to $44.35.

For the quarter combined accessory sales were down approximately 3.5% and combined footwear sales were up approximately 17%. These two categories accounted for approximately 6.5% and 5.5% respectively of first quarter net sales, which compares to approximately 7% and 5% for each in the first quarter of fiscal 2009. Average accessory price points were up approximately 8.5% and average footwear price points were up approximately 9.5%. For the quarter denim accounted for approximately 45.5% of sales and tops accounted for approximately 33%, which compares to approximately 41.5% and 36.5% for each in the first quarter of last year.

Our private label business was up slightly as a percentage of net sales for the quarter and represent approximately 29% of sales. During the quarter we opened 11 new stores and completed three substantial remodels. As of the end of the quarter 236 of our stores were our newest format. For the full fiscal year we now anticipate opening 21 new stores including A, for back-to-school and two, for holiday and we also still anticipate completing 25 substantial remodels and with that we welcome your questions.

Thank you. We do have several questions in and I have a question from Nicole Chevron with Goldman Sachs. Please go ahead.

My first question was on your selling expenses it leveraged 30 basis points from last year and I wanted to see if you can quantify some of the specific drivers there, like incentive comps, payroll, et cetera.

Just as we, as what I had gone over before that drivers were expense related to incentive bonus accrual and in-store payroll expense where the drivers for the improvements and they were partially offset by increases in some of our store supplies, some of the internet expenses both related to fulfillment and marketing and then health insurance claims but we don't break those out specific.

Okay. And then my next question was on denim, for the quarter, you were able to raise denim prices by about 7%. How do you feel about the additional price increase opportunities going forward? And also, I wanted to see if you could talk about your reclaimed denim at the $39 price point, how that is performing relative to the more expensive denim styles and also if you are seeing customers move toward that lower price point gene at all? Thanks.

Okay. On the denim prices, I think that my best guess is that they're going be pretty consistent with the first quarter going into the back to school season. And on reclaim, it is still a small part over business, but we have been very happy with the sale through and we will add to that inventory on the men's side, not substantially but steady increases on that based on the selling.

Do you have any plans to roll that over to women's also.

Not specifically that way. We might look at a new label that would offer a different price point under what we are doing now, but that's still kind of in development and testing.

Great. Thank you.

Sure.

We have a question from Tom Filandro with SIG, please go ahead.

A couple of question. Dennis, I just want to tag on that denim question, are you increases prices on comparable denim or are you seeing a mix shift that's driving the higher denim pricing and maybe you can give us a little color on brand successes in the quarter?

Well, I think it is just that we have got a good assortment of brands at a lower price point than we carry in the first quarter of last year and that mix should continue most of the brands are brands that we have been carrying, just working on some exclusive product and better inventory and better flow of the product. Let's see what was the other part of your question?

I guess it is not a comparable, it is not a comparable item increase in pricing. You are getting higher priced brands moving into the mix?

Yes, and -- or just kind of some of the same brands, just adding more SKUs to their styles, and we do, we are testing some of the higher price point brands but they are in very few stores, and very small part of it and don't really see a hugh increase on that, I don't think that would be adding a lot to the number.

Thanks. And a question for Karen, I think that buying distribution comments made in occupancy, it was a 60 drag on gross margin, can you can dig a little deeper into that Karen? Were you not able to leverage occupancy in the 2.8 comp and directionally should we assume deleveraging that component of the business for the balance of the year?

There were several components of the buying distribution and occupancy. We did see increases in our base rent as with some of the remodels that we have done in some of the better centers we see increased rents there as well as in our newer stores in the new markets. On the percentage rent line it really kind of, it is variable based on which stores are performing well, and so even with a 2.8% comp for the quarter, we did see an increase in percentage rent expense for the quarter, and also, as you know, another one of the line items, is the common area maintenance and that is a line item that we have seen with, with snow removal expenses, with continued increases in some insurance costs that the land lords have passed those costs along to the retailers. And then, with the roll outs, that we did last year on fixtures, there's some increase in depreciation expense. So to answer your question, Tom most of those costs will continue throughout the year. The first quarter was sales being a little bit lighter, it is a little harder than in the back half of year, where overall sales are stronger. As far as absolute dollars of sales.

Thank you very much. Best of luck you guys.

Thank you.

We have a question from Anna Andrea at JPMorgan.

Great. Thanks so much, guys. Good morning.

Morning.

I was hoping maybe you can talk about how should we think about the impact of later memorial day later this year. And if you are doing anything promotionally in May to help offset that negative impact?

May we see it being a very slight impact is our best guess, we don't see it as a substantial impact and we have no promotions going on in May that would alter that.

Okay. So a point or two negative to May then?

Is that what we projected.

I mean, yes, probably less than that, but -- pretty minimal impact I think.

Okay. Got you. That's great. And could you guys talk about how you view the IMU opportunities for this year? I guess most retailers are seeing some benefit here in the first half, and some pressure in the fourth quarter and potentially into 2011. Are you seeing that as well? Or do you think you have the opportunity to offset that pressure? With higher AURs?

I think in most cases we have the opportunity to offset any cost increases or changes. Where we do have increases we are able to stylize or add details and much to be able to raise the price and still offer a great quality for the fashions we are showing, and other opportunities we are showing good opportunities to raise initial mark ups, and so overall I see it kind of being a flat case for us.

Flat for 2010 or flat in the back half.

2010 for 2010 in general, I mean I am not look k out to 2011.

Got you. Talk about what's going on in the accessory category, what is driving some of the declines there, and do you think there is an opportunity to see some improvements sequentially and we get through the year?

Yes, I think we can, that's a good opportunity for us to improve. We didn't plan as well as we should have and we were low in inventory in the accessories especially in ladies. We think we can do better going forward?

Thanks so much. Best of luck.

We have Margaret Whitfield with Sterne Agee.

Hi Dennis and Karen, a question on the calendar in terms of June you will pick up Memorial Day, you will lose some July 4. What kind of impact do you see on comps and are there any promotions planned for June and what is your thought on the, the nit business which has been weak on both sides, gals and guys for a while now? And any progress there, any new lines? Any new ideas to offset?

Honestly, we -- at least I haven't looked at the June,-July offset. Here again my first thought would be it would be a smaller adjustment. We have no promotions planed for June. In July we have our denim promotion we have done. A try-on event that they could -- enter online for prizes as well as receive a free Tee with purchase of two regular priced denim or a special price offer on the T-shirts. But that's a repeat of several years on promotion for July. And let's see what was the other part.

The knit has been weak on both sides, what is the outlook there, any new lines coming in.

Well, our sale through have been very good, and we like our position on that and getting a good response to it. Still on the men's side, the increases from the last couple of years has been difficult to top and last year our gals growth in knits was incredible and if you add the sweater category which we had some of our knit vests in with the just the vest in general we would of had an increase on the gals tops if you put those together. So, we are happy with our sale through on those?

And private label Dennis, do you see that being relatively stable, as a percent, it has been 29% I think you said in Q1?

Yes. I think it will hold right in that area, maybe up slightly.

Okay. Thanks and best of luck.

Thank you.

Edward Yruma with Keybanc. Please go ahead.

Thank you for taking my question. A follow up on the incentive comp question, what comp do you need and I know it varies with home office as well as in the field, what comp do you need to accrual at 100% bonus level.

I guess it doesn't quite work that way. We look at the components and there are dollar that is go into the bonus pools from three different categories, from growth in comparable store sales, growth in gross margin, and growth in prebonus pretax net income. So we look at all three of those categories, and we make management makes its best estimates as far as where the number also come in for the year, and then, to come up with the factors and then we accrue that based on the net profit for the first quarter appropriately.

Got you. Just so I am clear, if results stay relatively consistent with first quarter, there should be something you will be able to leverage through the remainder of the year?

Correct, yes.

One other bigger picture question, Dennis, there are a number of retailers targeting these lower population markets, and particularly within your H bracket, have you seen any change in the competitive environment? Thank you.

No. I know I assume you are talking about Route 21's expansion. And they have been in our markets for a number of years. We have seen some new openings but we see the product mix, the most part being quite a bit different. Outside of that, I don't see or haven't seen in the lower populations a big increase of new competitors.

Great. Thank you.

You're welcome.

We have a question from Liz Pierce with Roth Capital Partners. Please go ahead.

Thank you. Congratulations, Dennis maybe you can tell us a little bit how the remodel stores, I can't remember if you mentioned any performance metric but just an update on how they're doing?

Our remodel stores we have been happy with how they have turned out and how they performed. As we mentioned in the past, if we have a very strong position in the market, we might not see the same sales gains as maybe a market where we still have more room to improve or we have improved our location or some times we have added roughly 20% square footage but we still have a very good response to our new format when we remodel and some times reposition, and so we have been very happy with our remodel program.

All right. And then on a broader issue, in terms of denim, what are you hearing just in the general kind of on the vendor side from other retailer, I mean is there any weakening of the dominance of denim?

Well, we have just came off of a very strong first quarter of denim, and we are liking what we see, new product and our merchandise selection going into in back to school. So, at this point we would see our denim business continuing to be good.

Okay. So particularly on the women's side, she's not looking for perhaps a non-denim bottom at this point and you feel like you can continue to drive like traffic conversion et cetera, just by I think you said by adding things to the denim?

Yes, I think that we had another double-digit gain on top of almost ten years of very good gains of denim and so we continue to add to our fits our brand brands and our selection. So we still think that will be a strength for us. In the summer we experiment with casual fabrics and those have worked fine and we are always open to look at other fabrications and styling but at this point it hasn't been a big factor in our presensation.

If I may just circle back, I wanted to clarify on the rents, on the occupancy, so the pressure was on the common area maintenance?

I guess I looked at four different categories where we saw increases in all four of those categories in the base rent, the percentage rent, the cam and the fixture depreciation.

Were they all equal? That's what I was trying to figure out.

All pretty comparable there, as far as the increases.

And so on the base rent, are you not getting any relief, they don't need to give you any relief or --

I think those are situations where in a lot of cases we've had good rent deals and we have some turnover of old leases, where it will have probably a little higher fixed rent than they were, but they're in high performing centers and they're not going give us rent relief if we are paying percentage rent. That doesn't seem to work out. And so as we have mentioned in the past, the A malls, we feel are good economic terms and excellent locations in these centers, which will be very good for us, as we go forward and lesser malls than we have a lot of flexibility on how we approach the landlord.

And I think, one other thing on that, Liz we had pretty strong new store openings for the first quarter, and fiscal 2010, so we have stores that are just opening and have those rent flowing in from those new stores but also when we talk about leverage, we will look at the fiscal year, and if you look quarter by quarter, the first half of the year is always harder to get leverage because of the absolute dollars of sales are smaller, in Q1 and Q2 compared to the back half of year. And so with the number of new stores, and the renewal, first quarter, does that make more sense.

It does. Thanks and best of luck.

Thanks.

We have a question from Laura Champine with Cowen and Company.

Hi guys, it is Rob [Sonoma] in for Laura. We were just wondering if you can comment or expand on what you see as the largest or most significant merch margin opportunities. I know you leveraged 55 basis points this quarter on top of 90, and the comps stay pretty significant. So I just wanted to see what you think about merch margins.

On the merchandise margin, we feel that we have been running, we are not promising any growth there. Karen, do you have anything on the other --

I would agree with you on that, Dennis. What -- the second part of that, I may have missed the second part of the question.

Oh no, I was just pointing out that the comps stay pretty flood to slightly up on merchandise margin for the rest of the year, and we were just wondering if you, what you thought your biggest opportunity was for the balance of the year, just improving or maintaining merch margin.

Our margins in most of those categories last year were all pretty good. I don't know if there's one category to identify to increase substantially.

Thank you.

We have a question from Dana Telsey with Telsey Advisory Group.

Good morning everyone.

Morning.

Can you talk a little bit about any updates what you are seeing there whether it is transactions, number of people, or anything regionally, and how do you feel about raw material costs on any of the product categories and how will that impact pricing going forward and just lastly, new brands out there I hear that Christian, (Inaudible - background noise) -- is starting a new brand, the same guy, is that something of interest? Thank you.

I will take the first question on the updates on the loyalty, right now, our primo loyalty card is still a manual punch card, but we do, we do continue to see guests valuing that card and especially as we have talked about the increase in the denim price points and building on success denim fits in store, we think the loyalty card has helped play into the success of that program all, as well. So the set backs we've had in our point of sale software rollout, we won't see a conversion to electronic royalty card, until to 2011. But we do know the guest love that primo card and value the rewards it provides them for that $10 redemption. So we think that is a good program to continue going forward, and again our goal is to convert from that manual punch card to the electronic card be able to gather some additional data regarding this spend in connection with the loyalty program. And Dennis I think the next question on the raw material costs I will turn that over to you.

Okay. Yes, we are seeing some cotton price increases and such. I don't think they will have a huge impact on our, our margins but that's something we will be dealing with, and on the new brand, I will have to check with our merchandisers I'm not sure if we have reviewed that label yet or not.

Thank you.

We have a question from Linda Tsai with MKM Partners. Please go ahead.

Yes. Good morning. When you look at the increase in demand for private label denim, do you think you are attracting incremental customer with that lower price point? Or is it just existing customers buying more across our mix.

From talking to store, it is mostly finding new guests that either just want some more basic jean or a jean for everyday or work that they can use that they haven't been buying for us, in tradition in the past, it is one more for weekends or special events, and occasions like that. Most f of that is a new customer.

Older or younger customer?

Some of each, but probably a little younger overall.

Great. Thanks very much.

You're welcome.

We have a question from Bill [Deslham] Titan Capital Management. Please go ahead.

Would you please on a post mortem basis now discuss the sales trends through the quarter, and how those trends may or may not have related to Buckle's specific initiatives or promotions that you had going on, please.

We don't give sales out on a week by week basis. I don't think there are any monthly trends that we are able to break out there.

We are -- our promotion was the same as previous years and didn't see any unusual flex in the business with that which was in March.

And relative to the April comp being what additional insights do you have now that you have more time to reflect back on that.

As you saw our inventory at the end of April was on comp store basis was down 2.5 so we good of done a better job in a couple categories of stocking our stores, and moving some product that way. But outside of that we are pleased with the performance of the profits of the quarter.

And would you care to comment on May sales at this point?

We never do.

I thought I would try.

All right.

Lastly relative to the POS system, could r would you provide more insights into what it is that you are ultimately trying to accomplish that you are not getting to dial in as effectively as you are wanting to tie it in with the set backs you are experiencing?

I think with so many of the software companies and what we continue to learn that so much of that is a can product and we have very special needs, we want customization to fit our needs and how we run our stores. So as with our old or our current provider, we have the new software provider and some of the customizations is taking them longer. They've had to move some of the development from offshore resources to US resources which I am glad that they're adding some additional resources to our project. But I think the amount of customization that we required is taking longer. Does that answer your question?

I think so, Karen. From what you are saying, the inference is that you do believe this will be able to accomplish what it is you are wanting to get done, it is just taking longer than planned?

That is correct, yes.

Thank you both.

We have a question from Lee Giordano from Imperial Capital.

Thanks. Good morning everybody. Can you update us on the long term store growth opportunity you see in terms of the ultimate size of the chain, also geographically, and then, the types of centers you are targeting? Thanks.

We are targeting the strong regional shopping centers and continue to review that, long term, we still feel that there's over 500 opportunities and stores, and possibly more. But the -- we will continue to look at each opportunity on its own, and not be forcing store that is we wouldn't feel comfortable about. And so, pretty much our strategy is hope to continue growth, steady growth growth as we have been. Each year we understand markets better and look to grow that is correct we think that will create more opportunities. But at this time, our real estate people feel that we would be over 500 probably the low 500 at this point

Great. Thank you.

(Operator Instructions). We do have a question from Arthur Mackey a Private Investor.

I have a question on your newer stores you are opening with bigger square footage and higher rent areas and I was just wondering if you have any, any impact, how those are going?

We have been happy overall with our new store openings and in markets where there is more rent in that particular locations, we see those opportunities as potential for some of our best, best stores. We are in a lot of centers throughout the states where they're very strong centers and higher rents than other markets, and as we grow and develop our business, they end up being some of our best stores. So, we are comfortable with the markets we are in right now.

Okay. But you are not leaning toward a more increase you're welcome percentage of those higher rent stores are you or are you not?

Well, we are not specifically targeting the markets, I mean as I mentioned earlier, we look at each situation, and feel good about the opportunities for our business and the economics of each location.

Thank you very much.

You're welcome.

We have no further questions in the queue at this time.

Thank you.

We have one come from Liz Pierce with Roth Capital Partners.

Okay.

I will place her in. Thank you.

Sorry. Thank you.

Just clarification, you said you opened 11 in Q1, and you have got three planned store openings obviously, three planned for holiday and eight for back to school? Is that right?

I thought they said eight for back to school and two for holiday.

That gets me to 21. Thank you. Okay. Thanks bye.

You're welcome.

There's no other questions again in the queue.

Okay. Thank you.

You're welcome. Ladies and gentlemen that does conclude the conference for today. Thank you for participating. The replay will be available for this beginning at 11:00 AM today until June 3 at midnight. You may access the AT&T play back service at anytime by dialing 1-800-475-6701 and entering the access code 156910, International participants may dial 1-320-365-3844. Again those numbers 1-800-475-6701, and 1-320-365-3844. And the replay access code again 156910. I thank you for participating and using AT&T Executive Teleconference. You may now disconnect.

Thank you.