Buckle Inc (BKE) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Buckle's fourth-quarter earnings release conference call.

(Operator Instructions)

And as a reminder, your conference is being recorded.

Members of Buckle's management on the call today are Dennis Nelson, President and CEO, Karen Rhoads, Senior Vice President of Finance and CFO; Pat Whisler, Senior Vice President of Women's Merchandising; Bob Carlberg, Senior Vice President of Men's Merchandising; Kyle Hanson, Vice President, General Counsel and Corporate Security, and Tom Heacock, Treasurer and Corporate Controller. As they review the operating results for the fourth quarter which ended February 1, they would like to reiterate their policy of not giving future sales or earnings guidance, and having the following Safe Harbor statement.

The Safe Harbor statement under the Private Securities Litigation Reform Act of 1995, all forward-looking statements made by the Company involve material risks and uncertainties, and are subject to change based on factors which may be beyond the Company 's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed and implied in any such forward-looking statement. 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 to 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 reproduction or recordings of the call should not be relied upon, as the information may be inaccurate. I would now like to turn the conference over to your host, Ms. Karen Rhoads. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining Buckle's conference call. Our March 14, 2014 press release reported that net income for the 13 week fourth-quarter that ended February 1, 2014 was $59.3 million or $1.23 per share on a diluted basis, and that is compared to net income of $61.4 million or $1.28 per share on a diluted basis for the prior year 14 week fourth-quarter that ended the February 2, 2013. Our net income for the 52-week year that ended February 1, 2014 was $162.6 million or $3.39 per share on a diluted basis, compared to net income of $164.3 million or $3.44 per share on a diluted basis for the 53 week fiscal year that ended February 2, 2013.

Net sales for the 13 week fourth-quarter decreased 6% to $339 million, compared to net sales of $360.6 million for the prior year fourth quarter, which was a 14 week quarter. Comparable store sales for the quarter were down 2.8%, in comparison to the same 13 week period in the prior year. Our online sales, which are not included in comparable store sales increased to $29.3 million. For the 13 weeks compared to the 14 week quarter a year ago, that was an increase of 0.4%, and if we compare the same 13 weeks a year ago, online sales were up about 7.3%.

Net sales for the 52 week fiscal year ended February 1, 2014 increased 0.4% to $1.128 billion, compared to net sales of $1.124 billion for the 53-week fiscal year ended February 2, 2013. Comparable store sales for the fiscal year were flat in comparison to the same 52-week period in the prior year. Our online sales, which again are not included in comparable store sales increased to $89 million, and that is for the 52 weeks compared to the 53 weeks a year ago. That was an increase of 5.3%. And in comparing 52 weeks to 52 weeks, the increase would have been close to 7.5% for online sales.

Gross margin for the quarter was 47.6%, down approximately 40 basis points from 48% for the fourth quarter last year. The decrease was driven by deleveraged occupancy, buying and distribution expenses, resulting from the comparable store sales decline and one fewer week in the fiscal quarter this year, which had approximately 110 basis point impact on gross margin, and was partially offset by a 40 basis point improvement in merchandise margin, and a reduction in expense related to our incentive bonus accrual.

For the fiscal year, gross margin was 44.2%, down approximately 20 basis points from 44.4% in FY12. The decrease was driven by deleveraged occupancy, buying, and distribution expenses, which had approximately a 55 basis point impact on gross margin, and was partially offset by a 25 basis point improvement in merchandise margin and a reduction in expense related to the incentive bonus accrual.

Selling expense for the quarter was 18.5% of net sales, compared to 18% for the fourth quarter of FY12. Increases in store payroll expense, advertising expense, online marketing and fulfillment expenses, health insurance claims expense, and certain other selling expenses were partially offset by a reduction as a percentage of net sales and expense related to the incentive bonus accrual. For the fiscal year, selling expense was 18.3% of net sales, compared to 18% in FY12. Increases in store payroll expense, health insurance claims expense, and certain other selling expenses were partially offset by a reduction as a percentage of net sales in expense related to the incentive bonus accrual.

General and administrative expenses for the quarter were 1.3% of net sales, compared to 3.0% for the fourth quarter of FY12, with the decline primarily driven by reductions in equity compensation expense and expense related to the incentive bonus accrual. For the fiscal year, general and administrative expenses were 3.1% of net sales compared to 3.5% in FY12, again primarily driven by reductions in equity compensation expense, and our expense related to the incentive bonus accrual.

Our operating margin for the quarter was 27.8% for the fourth quarter of FY13, compared to 27% for the fourth quarter of FY12. For the full fiscal year, our operating margin was 22.8% in FY13, compared to 22.9% in FY12. Other income for the quarter was $2.2 million, compared to $1.2 million for the fourth quarter of FY12, and other income for the full fiscal year was $3.5 million, compared to $3.5 million last year.

Income tax expense as a percentage of pretax net income was 38.6% for the fourth quarter of FY13, compared to 37.9% in the fourth quarter of FY12, bringing our fourth-quarter net income to $59.3 million for FY13, versus $61.4 million for FY12. For the full fiscal year, income tax expense was 37.6% of pretax net income in FY13 and 37.2% in FY12, bringing year-to-date net income to $162.6 million for FY13, versus $164.3 million for FY12.

Our press release also included a balance sheet as of February 1, 2014 which included the following: inventory of $124.1 million which was up approximately 19.5% from inventory of $103.9 million at the end of FY12, and total cash and investments of $228.5 million, which compares to $179.8 million at the end of FY12.

As of the end of the quarter, inventory on a comparable store basis was up approximately 18%, and total markdown inventory was up compared to the end of FY12. We also ended the quarter with $158.6 million in fixed assets, net of accumulated depreciation.

Our capital expenditures for the quarter were $3.6 million, and depreciation expense was $8.6 million. For the full fiscal year, capital expenditures were $28.8 million, and depreciation expense was $32.6 million.

Year-to-date capital spending is broken down as follows, $21 million for new store construction, store remodels and store technology upgrades, and $7.8 million for capital spending at the corporate headquarters and distribution centers. And that includes $5.4 million for the purchase of a new airplane to replace a plane that had been sold at the end of FY12. We currently expect our FY14 capital expenditures to be in the range of $48 million to $53 million, which includes primarily new store and store remodeling projects, IT investment, and the construction of a new office building as part of our home office campus here in Kearney, Nebraska.

For the quarter, UPTs increased approximately 3.0%. The average transaction value increased by 0.1%, and the average unit retail decreased approximately 2.5%. For the full fiscal year, UPTs increased approximately 3.5%. The average transaction value increased approximately 2.5%, and the average unit retail decreased approximately 1.0%. Additionally, our average sales per square foot for the year was $461 compared to $475 in FY12, and our average sales per store was $2.3 million, compared to $2.4 million in FY12.

Buckle ended the year with 450 retail stores in 43 states, compared to 440 stores in 43 states at the end of FY12. Additionally, our total square footage was 2.271 million square feet as of the end of the year, compared to 2.208 million square feet at the end of FY12. And now, I would like to turn the call over to Tom Heacock, our Corporate Controller and Treasurer.

Good morning, and thanks for joining us this morning. I would like to start by highlighting the performance from our various merchandise categories, for both the quarter and for the full fiscal year.

Men's merchandise sales for the quarter were down approximately 5%, compared to the prior year 14 week fiscal quarter, and were up just slightly compared to the same 13 week period last year. Strong categories included denim and casual bottoms and sweaters.

Average denim price points for the quarter increased from $87.40 in the fourth quarter of FY12 to $88.45 in the fourth quarter of FY13. For the quarter, our men's business was approximately 44.5% of net sales, compared to approximately 44% last year, and our average men's price points were flat at $59.90.

For the full fiscal year, men's merchandise sales were up approximately 1.5%, with strong categories including denim and casual bottoms, knit shirts, sweaters, shorts and accessories. Average denim price points for the full year increased from $87.85 in FY12 to $89.15 in FY13. For the year, our men's business was approximately 41.5% of sales compared to approximately 41% last year, and our average men's price points increased slightly from $55.25 to $55.60.

Women's merchandise sales for the quarter were down approximately 7% compared to the prior year 14 week fiscal quarter, and sales were down approximately 1% compared to the same 13 week period in the prior year. Strong categories on the women's side included casual bottoms, knit tops, sweaters, outerwear, accessories and footwear.

Average denim price points for the quarter decreased from $101.10 in the fourth quarter of FY12 to $98.85 in the fourth quarter of FY13. For the quarter, our women's business was approximately 55.5% of net sales compared to approximately 56% last year, and our average women's price points decreased approximately 6% from $52.95 to $49.80.

For the full fiscal year, women's merchandise sales were down just slightly, with strong categories including casual bottoms, woven tops, sweaters, active apparel, skirts and dresses, outerwear, accessories and footwear. Average denim price points for the full year decreased from $98.55 in 2012 to $98.40 in FY13. For the year, our women's business was approximately 58.5% of sales compared to approximately 59% last year, and our average women's price points decreased approximately 2% from $49.05 to $48.15.

For the quarter, combined accessories sales were down approximately 1.5%, and combined footwear sales were up approximately 5% compared to the prior year 14 week fiscal quarter. Compared to the same 13 weeks last year, accessories sales were up approximately 3.5%, and footwear sales were up approximately 13%. These two categories accounted for approximately 9% and 5%, respectively, of fourth-quarter net sales, which compares to approximately 8.5% and 4.5% for each in the fourth quarter of last year. Average accessory price points were down approximately 6%, and average footwear price points were up approximately 15%.

For the full fiscal year combined accessories sales were up approximately 2.5%, and combined footwear sales were up approximately 10.5%. And these two categories accounted for approximately 8.5% and 6%, respectively, of net sales for the full year, which compares to approximately 8.5% and 5.5% for each in FY12. Average accessory price points for the full year were down approximately 3.5%, and average footwear price points were up approximately 15%.

For the quarter, denim accounted for approximately 48.5% of sales, and tops accounted for approximately 30.5%, which compares to approximately 50.5% and 30% for each in the fourth quarter of last year. For the full-year, denim accounted for approximately 45.5% of sales, and tops accounted for approximately 30%, which compares to approximately 46.5% and 31% for each in FY12. Our private label business was up slightly as a percentage of sales for both the fourth quarter and for the year, and represented just over 34% of sales for the full year.

During the quarter, we completed 3 substantial remodels, and closed 2 stores post-holiday, bringing our count for the full year to 13 new stores, 8 full remodels and 3 store closures. We also closed one additional store just after the end of the fiscal year. As of the end of the year, 341 of our 450 stores were in our newest format. For FY14, we anticipate opening 17 new stores including 4 for spring, 9 for back to school, and 4 for holiday, and we also anticipate completing 7 full remodels during the year.

By season, we anticipate eight of the remodeled stores will be completed for spring, seven for back-to-school, and two for holiday. Planned new store openings for the spring include stores in Lake Jackson, Texas which already opened in February, Anchorage, Alaska which will be a new state for us, and two in the Dallas, Texas market. Also, please note that four of our planned new stores we will be in Mills projects, which are a hybrid of outlet, entertainment and full price retail. And we plan on operating these in our standard format. And with that, we will open it up to your questions.

Thank you.

(Operator Instructions)

Our first question is from Edward Yruma from KeyBanc. Please go ahead.

Hello, good morning. Thanks for taking my question. Specifically on the G&A number, I -- Karen, I think you did cite that incentive comp accrual was one of the reasons why it was down year-over-year. But I think the $4.5 million was the lowest it has been since 2003. I wonder if you could talk a little more about the drivers there, or if there was a reversal?

There was a reversal, Ed, and we had been accruing, in Q1 through Q3 for achieving both performance targets for the 2013 grants of restricted stock, and we did not attain those performance targets. So there was a reversal of the accrual related to the FY13 grants from the prior three quarters. So the expense had been -- total restricted stock expense had been averaging about $2.5 million per quarter, and with the true-up in the fourth quarter, the fourth quarter was actually a credit of about that same amount. Does that help?

Got it. So about [$7.5 million] then?

Well, the $2.5 million per quarter is the total expense. The reversal is only related to the 2013 grants. There is also expense related to prior-year grants.

Got it. And just, I have a bigger picture question, I think the spread between your inventory growth and your sales growth is the widest it has been in sometime. I guess, just how do you feel about inventory overall, given the promotional environment, and how quickly can you get inventory more aligned with sales? Thanks.

Good morning, Ed. This is Dennis. Well, last year we came off the holiday season very low in denim, and part of that was in the gals. We were still transitioning from our previous maker of our BKE brand, and working with the different vendors. So our inventory on our gals denim was very low at the beginning of last year, as well as the men's was coming off a strong holiday season. So we have increased our inventory in both guys and gals denim to take care of our guest.

Also, we found that last year we had problems with some deliveries with the Chinese New Year -- seems to be extending each year with the workers not coming back to the plant. So we brought in more product to be ready for the spring season in January than previous. And so, we feel good about that. Also, it is a still small part of our business, but some of the children's product that we have added in our stores contributes to the growth as well. And we feel good about our inventory, and I think you will see we will manage that well through the year.

Got it. Thanks so much.

You're welcome.

Thank you. And our next question is from Paul Alexander from Bank of America. Please go ahead.

Hello, thank you. Just a follow-up on the inventory question. Could you break down what is inside the elevated markdown inventory? Is any of it some of this escalated investment in denim? And why is it, that with a heavier investment in denim, the women's denim business is not performing as well?

So we are coming off a multiple years of very strong denim performance. But we still have a very good regular price business, and feel very good about our selection. Our total markdown dollars are up slightly, but as a percent of our inventory, it is down from the year before.

If could just get a follow-up. On the internet sales, you noted that on a comparable week basis, they actually grew 7%. But it is still below the industry growth rate for e-com. Why do you think your online growth has been weaker than peers? Do you need to invest in systems there? Are you at all worried that you might be losing online share? Thank you.

That is a good question. We believe the -- we have not been promotional with our online sales, and have not had any free shipping specials. We continually run it, our business regular price like our stores. And also, over the last year, we have added that if a guest orders or buys something that they can special order out of the store, and have free shipping and pickup at the stores. I know that has cut into the online business as well. So we think it has been a good way to run the business in a profitable way.

Thank you very much.

Yes.

Thank you. Our next question is from Simeon Siegel from Nomura. Please go ahead.

Great, thanks. Good morning. I think you said you posted a 40 basis point merch margin increase in the fourth quarter, which seems impressive in light of the promotional environment. Can you talk to where you would expect merch margin trends to go forward? And then just quickly, Karen, given the puts and takes between the selling and SG&A that you were referring to, can you just give us any color on the expected SG&A dollar growth for 2014? Thanks.

You want to go first, Karen?

Yes. I think on the expected SG&A for 2014, I think we would see that kind of on a more normalized basis, that the reversal in the fourth quarter was really a one-time reversal related to those 2013 grants where the performance targets were not achieved. And we will, during every quarter in 2014, we will continue to evaluate the target for the new grants.

With the 2013 grants forfeited, there will be a slight reduction in expense because -- the expense is spread over period of time. So we will have a little bit of a slight decrease from not having those grants included in the quarterly accrual.

And regard to margins, we feel good about our selection and where we are at, as we start this -- the year. But our margins have continually improved and they are at a level now that we don't promise continued improvement there. But we will do our best to work at improving that.

Great, thanks. Good luck for the year.

Thank you.

The next question comes from Kate Fitzsimmons with JPMorgan. Please go ahead.

Yes, hello. Thank you for taking my question. My question is on CapEx. It is going up pretty sizably this year compared to last year. How should we think about this, as it relates to other uses of cash in 2014? You have historically been pretty generous in returning excess cash to shareholders. So just any thoughts there would be helpful.

And then, I also noticed that you recently appointed a new EVP of stores. Just what do you expect her focus is to be in 2014, and what should we be on the lookout for in 2014? Thank you.

Okay. Regarding the CapEx, we have been short of office space, and at our home office, and have finally started or soon will start on our building to just make it more efficient, and a better situation, work environment, as well as give people the space they need to do their business. And that is the biggest part.

We also will be adding -- the 17 stores is up from the last few years, just because we found opportunities we thought would be great long-term investments. As well as the remodels jumped substantially this year, here again., based on opportunities that we felt were very good for our future stores. And some of that is just a matter of timing with the spaces in the mall or the lifestyle centers, to be available to make the right situation. So we think those are all good investments.

On our executive VP of Stores, Kari Smith, who has been with us about 35 years. She has been an excellent leader with our sales team and management, and we are just involving her even more into the total business, in addition to leading the stores. And deals, I mean, she just does a fabulous job, and we will just increase her involvement. But in total, you probably won't see a big change from outside the Company.

Great. Thank you.

You're welcome.

Thank you.

(Operator Instructions)

And we will go to John Kernan from Cowen. Please go ahead.

Good morning.

Good morning, John.

A quick question on the driver of comps. AUR and transactions have been under some pressure for some while now, and UPT has been a really been a big driver. Can you talk about what is driving that, and what can continue to drive that going forward?

Well, I think our branded denim price points are still working well, and that has been a plus there. But I think, we spend a lot of time on developing stronger leaders in our stores and teams, and they continue to improve on servicing the guest, and putting outfits and creating loyal guests. And I think that has been a big plus there, as far as developing our business and improving the transaction value.

Okay. And then, just on some of the CapEx investments, I think are centered towards some IT stuff and online initiatives. Can you talk about some of the omni-channel initiatives you are putting in place now, to see, to drive some pickup in the e-com business?

I think on the CapEx, like Dennis mentioned, I mean looking at the increase for next year, the biggest part of that would be the increase in the number of store projects, with an increase in new stores, and the increase in remodels and then the office building.

And then, every year we have investments in technology, and so that is kind of a constant. I think right now, we are working on programs for customer loyalty like we have for couple of years, and some things that way that may require a little bit more investment this year than in the past. But otherwise, I mean, that is just a constant focus I think of investing in technology to improve things, to make them better, and make it better for our guests and our teams in the stores.

Okay. And then, just any comments around some of the newer markets and store performance in those newer markets that you have got into recently?

I think the last year, the -- all the store openings were in existing states. But we were very happy with our openings last year, and we continue to make progress in different regions. That again, the biggest impact on our business and the stores is our manager and the teams they develop. And so, region-wise I don't see any great exceptions to different areas. It basically comes down to the quality of the store manager, and the experience the guest has there, that has an impact on the store.

Okay, great. Thanks.

Thank you.

Our next question is from the line of [Peter Broche] from [Broche] Capital Management. Please go ahead.

Hello, thanks. Good morning. I had two related questions to your primary demographic. First, do you think you are being negatively affected by the so-called omni-channel, where expectations are for 24/7, online, mobile price apps kind of experience, where you might actually be being showroomed or fitted at Buckle, and then having customers make purchase somewhere else, purchases somewhere else online?

Well, I think the key to our success, along with our people is in our selection. With our brands, we almost are probably 70%, 80% exclusive styles in most seasons. And so, to find that exact product, or sometimes it is a exclusive fit for us as well as design, so that the guest cannot go elsewhere to buy that product.

And then, among our own brands, we have several of our own labels in both men's and women's that our teams merchandise and design, and are also exclusive. And not only have a great look, fit, but is unique styling, and has been very successful as well. So it would be very difficult for somebody just to shop us, and then go elsewhere to make the purchase.

Okay, great. That's very helpful. My follow-on is, what is it in your primary demographic, do you think that you are seeing any signs that they just may not have the same kind of discretionary purchasing power that they once had? Or do you think that they are delaying purchases compared to historical norms?

Well, I am not sure how to approach that part of it. I think the misunderstanding is that we are only high school and college shop -- for a lot of investors think that's our only customer. And we have actually developed, where some of our stores where we have a little longer history will tell us that they are -- they have more guests over the age of 25 than under the age of 25.

So we are able to sell to junior high, high school, college, and we have the majority of probably of our store managers and office staff are probably in their 30s give or take, or a little older. And they shop our stores extensively, and that is kind of how we see our guests. That once they realized that we could fit them, and put the outfits, and we have such a wide variety of styling and categories, lifestyles for our guests, that we continue to expand that guest.

And so, for some of our guests, yes, maybe there is some economic issues. But overall, we have a wide selection and I think we are in pretty good shape.

Great. Well, keep up the good work, and good luck in 2014.

Okay, thank you.

(Operator Instructions)

We have a question from [Elise DiVincenzo] from First New York. Please go ahead.

Hello, just a question on inventory just given the magnitude of the increase year-over-year. Do you think you can give some color around how much markdown inventory was up, just so we have a sense?

And then secondly, maybe if you could just clarify, on the denim inventory, I think Dennis you said, you were under inventory last year. And so, this year it should be up, or it is up, but it is down as a percent of the mix. So does that mean that the other categories were up even more than that 20% growth? And just help me rectify those two statements? Thanks.

Okay. I would say, most of increase would be in the denim inventory. Our other categories overall are pretty much right on target, and we feel good about that. The markdown dollars, if I understood the question right is, is up just slightly in dollars. But as we mentioned earlier, as a percent of our total inventory, it is down. Did we answer your question okay?

Okay. So markdown is down as a percent of the inventory, and then denim is also down as a percent of the inventory?

We don't break that out.

Okay. Got it.

Unless you have another comment.

No. Okay. Thank you.

Thank you.

Thank you. And at this time, there are no further questions in queue.

All right. With no further questions, we want to thank everyone for joining in the call today, and enjoy the weekend.

Thank you. And ladies and gentlemen, this conference will be made available for replay after 11 o'clock through March 28. You may dial the AT&T executive replay system at any time by dialing 1-800-475-6701, and entering the access code 321394. International participants can dial 320-365-3844. Again, the numbers are 1-800-475-6701 and 320-365-3844 with the access code 321394. That does conclude our conference for today. Thank you for your participation, and for using AT&T executive teleconference. You may now disconnect.