Buckle Inc (BKE) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter earnings release conference call. (Operator Instructions). As a reminder, this call is being recorded.

Members of Buckle's management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Vice President of Finance and CFO; Pat Whisler, Vice President of Women's Merchandising; Bob Carlberg, Vice President of Men's Merchandising; Kyle Hanson, Corporate Secretary and General Counsel; and Tom Heacock, Treasurer and Corporate Controller.

As they review the operating results for the first quarter, which ended April 28, 2012, 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 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 calls should not be relied upon, as the information may be inaccurate.

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

Thank you, and good morning, everyone. Thank you for joining our call.

Our May 17, 2012, press release reported that net income for the first quarter, ended April 28, 2012, was $37.8 million, or $0.79 per share on a diluted basis. That was up 13% from net income of $33.5 million, or $0.71 per share on a diluted basis, for the prior-year first quarter that ended April 30, 2011.

Net sales for the 13-week first quarter increased 9.9% to $263.8 million, and that's compared to net sales of $240.1 million for the prior-year first quarter. Our comparable-store sales for the quarter increased 7.4%, and online sales, which are not included in comparable-store sales, increased 15.1% to $19.7 million.

Gross margin for the quarter was 43.3%, up 40 basis points from 42.9% for the first quarter last year. The improvement was driven by the leveraging of certain occupancy and distribution costs, which had about a 50 basis-point impact, and was partially offset by an increase in expense related to the incentive bonus accrual, which had about a 10 basis-point impact.

Our merchandise margins for the quarter were even with the first quarter of last year.

Selling expense for the quarter was 17.5% of net sales, which was a reduction of approximately 30 basis points from the first quarter of fiscal 2011. The reduction was driven by decreases as a percentage of net sales in bank card fees and Internet-related fulfillment and marketing expenses, which were partially offset by an increase in the expense related to the incentive bonus accrual.

General and administrative expenses for the quarter were 3.8% of net sales, up approximately 10 basis points from the first quarter of fiscal 2011. Increases in expense related to accrued vacation pay and equity compensation expense were partially offset by the leveraging of certain other general and administrative expenses.

Our operating margin for the quarter was 22%, compared to 21.4% for the first quarter of fiscal 2011. Other income for the quarter was $1.8 million, which compares to $1.6 million for the first quarter of fiscal 2011.

Income tax expense as a percentage of pretax net income was 36.8% for the first quarter of both fiscal 2012 and 2011, bringing net income to $37.8 million for fiscal 2012 versus $33.5 million for fiscal 2011, an increase of 13%.

Our press release also included a balance sheet as of April 28, 2012, which included the following -- inventory of $97.0 million, which was up approximately 8% from inventory of $89.9 million at the end of the first quarter of fiscal 2011, and total cash and investments of $259.9 million, which compared to $236.5 million at the end of fiscal 2011 and also compares to $226 million at this same time a year ago.

As of the end of the quarter, inventory on a comparable-store basis was up approximately 6% and total markdown inventory was approximately even with this same time a year ago. A reduction in inventory in the one-third off category was offset by an increase in merchandise in the 20% off category.

We also ended the quarter with $170.9 million in fixed assets, net of accumulated depreciation.

Our capital expenditures for the quarter were $8.8 million and depreciation expense was $7.9 million. Capital spending for the quarter was broken down as follows -- $7.9 million for new store construction, store remodels, and store technology upgrades and $0.9 million for capital spending at the corporate headquarters and distribution center. We still expect our fiscal 2012 capital expenditures to be in the range of $32 million to $36 billion.

Also, as an update on our ongoing project to replace our point-of-sale software in our stores, we began the full rollout during the first quarter, and currently over one half of our stores are running on the new software. The rollout will be completed for all remaining stores during the second quarter of fiscal 2012.

For the quarter, UPTs decreased approximately 2%, the average transaction value increased approximately 7%, and the average unit retail increased approximately 8.5%.

Buckle ended the quarter with 431 retail stores in 43 states, compared to 422 stores in 41 states at the end of the first quarter of fiscal 2011. Additionally, our total square footage was 2.156 million square feet as of the end of the quarter, compared to 2.108 million square feet at this same time a year ago.

At this time, I'd like to turn the call over to Tom Heacock, our Treasurer and Corporate Controller.

Good morning and thanks for joining us. I'd like to start by highlighting the performance from our various merchandise categories that led to our net sales increase of 9.9% for the quarter.

Men's merchandise sales for the quarter were up approximately 10% with strong categories including denim, knit shirts, active apparel, accessories, and footwear. Average denim price points increased from $89.80 in the first quarter of fiscal 2011 to $91.45 in the first quarter of fiscal 2012.

For the quarter, our men's business was approximately 39.5% of net sales, compared to approximately 39.5% last year, and the average man's price points increased approximately 4.5% from $51.55 to $53.75.

Women's merchandise sales for the quarter were also up approximately 10%, with strong categories including denim and casual bottoms, woven tops, active apparel, and footwear. Average denim price points increased from $90.30 in the first quarter of fiscal 2011 to $96.15 in the first quarter of fiscal 2012.

For the quarter, our women's business was approximately 60.5% of net sales, compared to approximately 60.5% last year, and the average women's price points increased approximately 9% from $43.80 to $47.75.

For the quarter, combined accessory sales were down approximately 0.5% and combined footwear sales were up approximately 14%. These two categories accounted for approximately 7% and 5.5%, respectively, of first-quarter net sales, which compares to approximately 7.5% and 5.5% for each in the first of fiscal 2011. Average accessory price points were up approximately 1% and average footwear price points were up approximately 11%.

For the quarter, denim accounted for approximately 44.5% of sales and tops accounted for approximately 30%, which compares to approximately 44.5% and 31.5% for each in the first quarter of last year. Our private-label business was flat as a percentage of net sales for the quarter and represented approximately 30% of sales.

During the quarter, we did not open any new stores, but completed six substantial remodels. As of the end of the quarter, 305 of our 431 stores were in our newest format.

For the full fiscal year, we anticipate opening 10 new stores, including two that have already opened in May and one additional for spring, five for back to school, and two for holiday. We also still anticipate completing 20 substantial remodels and several smaller remodeling projects during fiscal 2012.

Additionally, planned promotional events during the second quarter include a Hurley gift with purchase and sweepstakes in June and our annual denim gift with purchase and sweepstakes, and a gift with purchase event with Roar in July.

And with that, we'll open it up to your questions.

(Operator Instructions). Simeon Siegel, JPMorgan.

Thanks. Good morning, guys. So there's no question you've done a great job driving the topline through these AUR lifts. Can you just talk about how you're thinking about your comp metrics going forward? Do you expect to show an improvement in units? And maybe you can talk about how you would expect to drive those. Are you assuming any improvement in transaction? Anything there would be helpful.

And then, I know we bring it up pretty often, but could you talk a little bit about your stance on inventory? You obviously ended this quarter really healthy position, below your sales growth. I think over the past few quarters you had spoken to potentially building that level strategically to hit certain product areas. So, any color on how you're approaching your inventory buys going forward would be helpful.

And then, lastly, do you have any color on your Natick and Vegas stores, how they're performing? I don't know if you guys spoke to those. That would be helpful. Thanks a lot.

Regarding the inventory, we had mentioned in the end of third quarter and the end of the fourth quarter that we had brought in some denim earlier, as well as building our inventories to take advantage of what we thought was missed sales previously.

And the flow of our inventory will continually change as we're always buying to maximize our business or be prepared for business. We are very happy with where we're at with our inventory right now, and the best estimate for the end of the second quarter would probably be about the same increase in inventory as we had at the end of this first quarter.

As far as forecasting on transactions or units per transaction, we're addressing the inventory status of our accessories, which, per units per transaction, probably had a little effect.

There's always cycling out of different hot categories. I think a year ago, first quarter, we were up somewhere around 30% in accessories, so being flat this year was, I think, due to cycling out -- just not having the right levels of inventory because we didn't see the right product in certain categories and such. But I think we've addressed that. The team is doing a nice job, and we're optimistic on that part going forward.

As far as stores in general, we've been happy with our new stores. The new areas always start a little slower, but have been doing fine. And as far as our Vegas store, we're very happy with that store. And our teams in the stores throughout the country are doing an excellent job, so we're very pleased with that.

Paul Alexander, Bank of America Merrill Lynch.

Hi, thank you. Could you stay on the inventory for just a moment and explain -- maybe give us a little color as to what happened during the quarter with inventory receipts or how quickly you were bringing in inventory? It seems days payable are down pretty significantly, so were deliveries late or did you just cut deliveries off on the back end? And if you did, what does that imply for your ability to drive comps in second quarter?

Well, I think at the end of the fourth quarter, we had brought some product in early.

You know, the Chinese New Year always seems to affect some of our spring shipping, and we've learned over the years that on certain categories we want to be sure to have for the early part of February and such that we need to bring those in before the Chinese New Year starts and such.

And the previous year, I think some people had been late on deliveries, so the buildup there was not only, as I mentioned, to take advantage of not having enough inventory in previous years, but also getting set up for spring.

And we're in the fashion business, and as we deliver new product in all categories almost daily and there's a continual flow, sometimes there's reasons to be more aggressive early. Sometimes we take a break and clean things out and ready to reload.

So that's kind of a -- we're not just buying a couple categories of real basic stuff, so it's a moving business. And sometimes you could get deliveries like the last week of the month that might show it up a little bit, or next time you might get them the next week after the quarter had closed. So, the inventories can vary for different reasons. (Multiple speakers)

Can I ask, would you say that you're currently in a period where you're taking a break or reloading? Have you been cutting off any receipts?

No. We've basically -- I mean, there's always something that would be late or something that doesn't get shipped that has an effect that we don't have control on or such.

But I think on some of the adjustments we needed to make earlier, we did, and now, at this time, it seems like it's more of a consistent level where -- I can't say that it's business as normal. But basically, we still have a steady flow of new product and we're looking to turn goods and do business the best we can.

Okay, that's great. And then, just one follow-up -- on the online business, any thoughts on the deceleration there in first quarter and what you're thinking for the rest of the year there?

I have not studied that. My one thought might be that we had a little less promotional product to clear out on store one, but that's kind of a hunch. Outside of that, we expect it to grow, but not necessarily going to forecast at what level.

Margaret Whitfield, Sterne Agee.

Good morning, and congratulations, Dennis. I was wondering about women's denim. Last month, April, it was negative. Right now, there's limited colored denim in the store. I guess it's a question as to whether or not this trend will last. I wonder what your thoughts are on colored denim and on your women's denim business, in particular. That's question number one.

And question number two, 10 stores opening this year. Might we see a lift in the number of new store openings in the following year? Thank you.

Regarding the new stores, it's too early to comment on 2013 yet as we're still looking at possibilities and opportunities.

As regards to colored denim, we had some color in more casuals early. As the team was shopping, we added some color in through the spring, probably more in the shorts or crops, for the most part. We have color -- a degree of color coming in as we go through back to school.

But in total, it's still going to be a small part of our denim mix. And I think with the earlier warm weather compared to last year's weather, you probably had some guests going for the denims shorts and some of the other categories that might have -- you know, we had strong gain in the activewear part of our business, so that might have had an effect.

But for the quarter, we were very happy with our denim business. So Pat, do you have anything on the color?

Just to reiterate what Dennis had mentioned, we were really happy with the strong results that we ended the quarter with.

We also have had some new receipts just recently on color in full length and casuals in denim, which will add to the mix. And then, we continue to see color as part of our mix going into the next season. So we're confident with the look, along with the unique details. But it will be a small part of our business.

Adrienne Tennant, Janney Capital Markets.

Good morning. Let me add my congratulations on the quarter.

Thank you.

My first question is about the price points within the denim category, particularly -- well, actually, on both of the men's and women's businesses. Can you talk about -- are their styles, is there any movement in the percentage of branded to private-label, anything that helps us understand where -- the consistency of those price increases? So if you can start with that, that would be great. Thanks.

Sure. Well, we've been very successful with some of our branded denim in the stores that are definitely at higher price points, close to $100, up to -- we're selling some Rock Revivals that are in the $160s, give or take. So we've had good response there, both -- and on the Rocks, both in men's and women's.

So our BKE brand is still doing well and working for us, but we've added the layers on in the branded business that have raised those price points up for us.

Okay, and where -- at least for Q1, what's the branded penetration this Q1 versus last year, last Q1?

Well, our private label was basically flat. As far as for Q1, I'm not sure if I've looked at that for breaking that out for denim. Do you guys have any information on that?

If you have private label for the total business, that's fine, too, because half your business is denim (multiple speakers)

That was about 30%, right?

Correct.

Yes.

And pretty flat on a year-over-year basis?

Yes, Adrienne.

Okay, great. And then, Pat, just to follow up on the colored skinny leg, is the customer telling you that -- I mean, there are so many other places to buy the colored skinny leg and there are so many different price points that maybe your denim, which last year I think was 47% of total sales, the offering that you have is more differentiated and she's coming in for that specifically, so that she -- maybe you don't need as much of the colored skinny leg as some other competitors are showing?

What we tried to do is give them a selection like we would do on all our categories. We didn't, by any means, walk away from our core business, which -- just great denim selection with unique details and finishes, and that continues to be very strong.

And when we see a trend come through like that, we treat it as a complementary part of the business like we would skirts or dresses or other things that trend. So we would want to have that as part of the mix, but don't think it really takes away from our core business or things that we have going on there.

Tom Filandro, Susquehanna International Group.

Thank you. My congratulations as well. Fantastic quarter.

I guess the first question is on the POS rollout, or at least the first quarter. I think you said it's going, Karen, to the entire organization fleet by, I think, second quarter. Can you tell us what efficiencies you believe you'll gain from that rollout? And does this mean now you're ready to roll out the POS loyalty program? And then, I have two follow-ups.

On the POS, I think two of the things right now is it does bring us into PCI compliance. I mean, that was one of -- making sure that we were totally in compliance is always been a big concern to us. It does allow us to take PIN-based debit, which we were not able to take before.

It does not mean that we're quite ready to roll out electronic loyalty, Tom. That's a great question, and that is kind of a next phase of the project.

Any thoughts on when that might happen? I feel like you guys have been testing it for a while, Karen.

We have. I don't have a definite date on there.

Again, we want to make sure that when we do it that we do it the way we can for the stores. And so, we don't want to --

Yes, we wanted to get the new POS system in before back to school and get that rolling. There's meetings on the clienteling, and that project has started already, but that will definitely be the second phase. And it will not be put in this year.

Thank you, Dennis. Follow-up question is, I'd be very curious if we can get any insights on Gimmicks and BKE Sport, how that performed and just the penetration of it? And is there a view that it will continue to be sort of two sub-brands that grow in the business? Any thoughts on those two would be great. And then, one more and I'll -- done.

Well, the Gimmicks response, for the ones not familiar with it, it's fashion tops the ladies come up this label and kind of their own fashion look -- based on the success of other things in the store, and so we're very happy with that.

And I think those should be out to probably over half the stores by back to school. So we're very pleased with that, and the trends will kind of determine the future of that.

And then, BKE Sport has been received well and is good. It's very small, and the team is continually coming up and testing new ideas and fabrics there. Pat, do you have any comments?

I would just add on the BKE Sport that we'll be launching hopefully in about mid-July BKE Sport for the ladies side as a complement to what the men's have been working on. So that will be something we can look forward to there.

And as Dennis mentioned, the Gimmicks line has been received very well. And so, we'll just -- that's designed in house. And so, we are just working to keep a nice, steady flow there and grow it as sales warrant.

Bob, do you have any comments on the men's sport?

Yes, like Dennis said, it was well received, although we've still got a lot to learn there and I think we'll continue to get better. We'll have more long sleeves that will complement the shorts and the true workout tees that we delivered for spring.

Great, thank you. And then, one final one, Dennis, just your AUC outlook. I'm sorry if you answered this earlier; I was off for a short while, but I seem to recall that you had not a huge impact on AUC during back to school fall, but clearly there was categories where you saw high single to low double-digit increases. I forget, it was outerwear, maybe sweaters. Can you just walk us through what you're thinking about in terms of -- or what you're seeing so far in terms of costing for the back half?

Yes, I think we'll see some improvement as we go through second quarter. And in the men's side, you'll probably see even more improvement from some of the sweaters or outerwear, although both are smaller categories for us, as well as some improvement in the denim costing and such, as well as woven shirts. So, that should be beneficial.

The ladies will see some increases as we get later in the year and such, although with the brands last year in a lot of the categories, the ladies seemed to be less affected last year with some of the cost increases than the men's.

John Kernan, Cowen and Company.

Just wanted to follow up on the previous AUR question. You've had 12 straight months of increasing AUR. How do you view AUR going into the back half of the year and the effects of a continually increasing AUR on merchandise margin? How do you view merchandise margin internally in the back half of the year as you cycle some easier comparisons? Thanks.

The average retails, we would probably see being pretty consistent or close to what they've been first quarter as we go back to school.

We focus on more the product of what our guest wants in the selection, the variety there, and we don't internally get too focused on the margin. I mean, that's part of it, but we want to make sure we have the right product and selection for the guests. So that's where we put our emphasis.

Okay, and is there a mix benefit that's going on with an AUR? Are you raising prices, or is it somewhat of a -- is it a mix that's driving that? I'm just trying to understand what's driving the AUR consistently, so (multiple speakers)

Well, the improvement of branded denim, especially on the ladies side, is driving those higher retails. And denim is such a big part of our business that it has a substantial effect on all our price increases.

On a lot of the other categories, you're probably seeing very similar prices, maybe sometimes even a little less. But it all comes down to the product is always changing, always different, could be different fabrics, different looks, or styles. So that changes as the season and the trends go.

Okay, and then one final question. Your cash balance is up significantly year over year. Just any change in how you view special dividend versus maybe a share repurchase going into the back half of the year? Thanks.

I don't think we have any comments on that. We just continually review with the Board at each meeting.

Edward Yruma, KeyBanc Capital Markets.

This is Jane in for Ed. Most of my questions have been asked, but I just had one last one. On vacation accrual that was referenced earlier, would you detail out the impact of that as the rest of the year goes on?

I think (technical difficulty) a bit of a change, I think, in the way that we accounted for that, and previously we'd accrued more of it at the beginning of the year, and now we're doing it throughout the year as the vacation is earned.

I think the impact in the first quarter was probably $700,000 and I think we'd expect it to be less going through the rest of the year, but there should be some impact in each quarter.

Okay, great. And are there any other one-off items similar to that in SG&A or G&A that we should be thinking about for the rest of this year?

I don't believe so, no.

Okay, great. Thank you.

Dana Telsey, Telsey Advisory Group.

Can you tell us a little bit about, as you're thinking about new stores, what's happening on the real estate cost of new stores? What kind of comps do you need to leverage occupancy costs and how long does it take a new store to be profitable, in addition to what are you seeing out there in the real estate development community? Thank you.

We're in markets from communities like our home office in Kearney, Nebraska, to the Mall of Americas, the NorthParks in Dallas. I mean, we have a wide range of centers.

And naturally, what the industry refers to B malls doesn't always refer to a B mall for us. But each situation, the economics can be different. There's a wide variety. The majority of our stores, we think, could certainly be profitable after the first year, if not before. We feel very good about that.

And we're continually working on new projects. We have the convention next week, which we always see a lot of opportunities and learn quite a bit from.

But overall, we see the climate pretty favorable, for the most part. We have a lot to offer for the malls. So as far as getting good locations and fairness on the economics of the deal, it seems to work out in most cases. So, we're optimistic on what's available and what we're looking at. Hopefully, that answers that.

Brian Delaney, EnTrust.

So on the inventory, I think someone asked earlier about the days payable, payables down pretty meaningful year on year. Is that a timing issue or a change in terms or just where we stood at the end of the quarter from an inventory deliveries perspective?

Yes, that's where we sat at the end of the quarter by inventory deliveries. That was the primary difference.

So the days payable, this new level that we've seen in the first quarter, should we assume this level going forward or is it just an anomaly?

I think it will really depend upon the flow of the product, how it flows throughout each quarter, where it's going to be at the end of the quarter.

Last year, there might have been some shipments that were late and some that were early that might have adjusted some of the numbers. Hopefully, we'll have the flow as we want this year.

But I think it's not unusual that we would bring down our full-length denim inventory to some degree for this time of the year, and then -- with all the newness that we want to bring in for back to school, so we're offering fresh product and styling and details. So, that would probably be a little more traditional, but it doesn't always work out that way.

And Dennis, at the end of last quarter, I thought you had guided to a low to mid teens type inventory growth. You came in, obviously, at below that. Is it -- once again, is it a timing issue, or did something change in terms of what you felt the opportunities out there were for inventory build?

Well, I think I was -- as I remember, it was more the low teen estimate. And like I say, there are so many variables in our business, whether we didn't reorder maybe some T-shirts that are on shorter delivery, if people shipped early, or just the sellthrough on -- I mean, there's a lot of variables. So being within a couple points of it, I think, is pretty accurate because it's just tough to call.

And the comp inventory up six, did you give a breakdown between where we sit units versus price year on year?

We did not, but I think units are up probably mid single digits, and then the cost would be low single digits.

Within the comp or within total inventories, same kind of breakdown?

Both, yes.

(Operator Instructions). And so far, we have no one else queuing up.

Okay. Well, thank you very much. I think we're done, then, Mary.

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