Buckle Inc (BKE) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the first-quarter earnings release.

(Operator Instructions)

As a reminder, this conference is being recorded.

Members of the 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 Secretary; Tom Heacock, Treasurer and Corporate Controller.

As they review the operating release's results for the first quarter, which ended May 3, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors which may be beyond the Company's control.

Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements, such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to publicly update and revise any forward-looking statements even if experience or future changes make it clear that they are protected results expressed implied therein will not be realized.

Additionally, the Company does not authorize a 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.

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

Thank you. Good morning, everyone. Thank you for joining the call this morning.

Our May 22, 2014, press release reported that net income for the 13-week first quarter that ended May 3, 2014, was $37.3 million or $0.78 per share on a diluted basis. That's compared to net income of $37.6 million or $0.78 per share on a diluted basis for the prior-year 13-week first quarter that ended May 4, 2013.

Our net sales for the 13-week first quarter increased 0.7% to $271.7 million, compared to net sales of $269.7 million for the prior-year 13-week first quarter. Comparable store sales for the quarter were down 0.9% in comparison to the same 13-week period in the prior year, and our online sales, which are not included in comparable store sales, increased 2.5% to $21.4 million.

Gross margin for the quarter was 43.1%, down approximately 30 basis points from 43.4% for the first quarter last year. The decrease was driven by deleveraged occupancy, buying, and distribution expenses resulting from the comparable store sales decline. Our merchandise margins for the quarter were essentially flat compared to a year ago.

Selling expense for the quarter was 17.6% of net sales, compared to 17.5% for the first quarter of FY13. An increase in store payroll expense was 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 3.7% of net sales compared to 3.9% for the first quarter of FY13 with the decline primarily attributable to the reduction in equity compensation expense.

Our operating margin for the quarter was 21.8%, compared to 22% for the first quarter of FY13. Other income for the quarter was $345,000, compared to $350,000 for the first quarter of FY13. Income tax expense as a percentage of pretax net income was 37.3% for the first quarter of FY14, compared to 37% for the first quarter of FY13, bringing first-quarter net income to $37.3 million for FY14, versus $37.6 million for FY13.

Our press release also included a balance sheet as of May 3, 2014, which included the following: inventory of $119.2 million, which was up approximately 12.5% from inventory of $105.9 million at the end of the first quarter of FY13; and total cash and investments of $237.8 million, which compares to $228.5 million at the end of FY13, and compares to $180.3 million at the same time a year ago.

As of the end of the quarter, inventory on a comparable store basis was up approximately 11% compared to the same time a year ago, and total markdown inventory was up on an absolute dollar basis but was down as a percentage of total inventory. We also ended the quarter with $160.7 million in fixed assets net of accumulated depreciation.

Our capital expenditures for the quarter were $10.1 million, and depreciation expense was $7.7 million. Capital spending for the quarter is broken down as follows: $8.8 million for new store construction, store remodels, and store technology upgrades; and $1.3 million for capital spending at the corporate headquarters and distribution center.

We still 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 investments, and the construction of a new office building as part of our home office campus in Kearney, Nebraska.

For the quarter, UPTs increased approximately 3%. The average transaction value increased approximately 2%, and average unit retail decreased approximately 1%.

Buckle ended the quarter with 450 retail stores in 43 states, compared to 443 stores in 43 states at the end of the first quarter of FY13. Additionally, our total square footage was 2.266 million square feet as of the end of the quarter, compared to 2.224 million square feet at the same time a year ago.

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

Good morning, and thanks for joining us this morning.

I'd like to start by highlighting the performance from our merchandise categories that lead to our 0.7% net sales increase for the quarter. Men's merchandise sales for the quarter were up approximately 2.5% with strong categories including denim and casual bottoms, shorts, and accessories.

Average denim price points increased from $90.30 in the first quarter of FY13 to $92.75 in the first quarter of FY14. For the quarter, our men's business was approximately 41% of net sales, compared to approximately 40% last year, and average men's price points increased approximately 1.5% from $53.95 to $54.85.

Women's merchandise sales for the quarter were down approximately 0.5%, with strong categories including casual bottoms, knit tops, sweaters, skirts and dresses, and accessories. Average denim price points on the women's side increased from $98.90 in first quarter of FY13 to $100.15 in the first quarter of FY14. For the quarter, our women's business was approximately 59% of sales, compared to approximately 60% last year, and our average women's price points decreased approximately 2.5% from $48.60 to $47.40.

For the quarter, combined accessory sales were up approximately 3%, and combined footwear sales were down approximately 0.5%. These two categories account for approximately 7.5% and 6%, respectively, of first-quarter net sales, which compares to approximately 7.5% and 6.5% for each in the first quarter last year. Average accessory price points were down approximately 2%, and average footwear price points were up approximately 4.5%.

For the quarter, denim accounted for approximately 43.5% of sales, and tops accounted for approximately 28.5%, which compares to approximately 44.5% and 28.5% for each in the first quarter last year. Our private label business was up slightly as a percentage of sales for the quarter and represented approximately 32% of sales.

During the quarter, we opened one new store, closed one store, and completed six substantial remodels. As of the end of the quarter, 346 of our 450 stores were in our newest format.

For the full year, we still anticipate opening 17 new stores in total, including two that have already opened in May, one that's planned for June, nine for back-to-school, and four for holiday. We also anticipate completing 18 full remodels during the year, including 2 yet to be completed in May, 7 for back-to-school, and 3 for holiday.

With that, we welcome your questions.

Lee Giordano, CRT Capital.

Thanks. Good morning everyone.

Good morning, Lee.

I was hoping you could talk a little more about the denim category, and in particular, premium denim business, what your outlook is for that business going forward into the back half of the year and into holiday? Also, it looks like average price points are going up. What's driving that increase? Thanks.

As we said on our last call, our denim inventory's got pretty low the year before, so we had added inventory to both the guys' and gals' business. The branded jeans like Rock Revival, Big Star Vintage, and a few smaller ones, those higher price points have been well received, and that has raised the average price of the denim. We're seeing good response to our denim selection and looking forward to the back-to-school season. Did that cover everything, Lee?

Yes, that's it. Thank you very much.

Gabby Carbone, Janney Capital Markets.

Hi, thank you for taking my question. I'm calling in for Adrienne Tennant. Many retailers have been talking about closing stores or slowing new store openings, and instead focusing on the DTC business. Any thoughts there as you continue to see this shift from brick and mortar to DTC and the investments being made in that business to drive sales going forward? Thank you.

Good morning. Thanks for the question. We see our online business to be just part of our strategy with our stores. We focus on the great specialty service in our stores, as well as with the wide selection. We're always working to drive people to the stores, and we do a lot of special orders with our guests in our stores from our online store.

We are working on CRM that we hope to be in place by the first part of next year. We have several projects that we think will not only help our business online, but will help also drive the guest to the store to shop as well.

In the markets, there's always change in neighborhoods and situations where there might be a better shopping area than the other, so we'll occasionally have store closing. But for the most part we're looking at driving our business, both with the store and the online business together.

Okay, great. Thank you so much.

Kate Fitzsimons, JPMorgan.

Yes, hi. Good morning. My question was how you're feeling about inventory just in terms of quality, just given the increased year over year? Then secondly, just any thoughts on how you're planning inventory into the back half, should we still expect to see it up double digits? Thank you.

There's a lot of variables, but I would see the end of the second quarter probably being in the high-single digits on inventory, but we've had a nice response to our selection, and we feel good about our inventory at this point.

Okay, great. Thank you very much.

John Kernan, Cowen and Company

Hi. Good morning, guys.

Good morning.

Just any comments you can give us on ecommerce, the growth there has been a little bit below what we've been seeing out of other specialty retailers. Anything you can tell us in terms of the investments you might be making there to get that line going?

Karen or Kyle, do you have anything to add from my previous comments?

This is Kyle Hanson, and I work closely with both marketing and development teams on the online store, and one of the things that Dennis mentioned that we feel that we've really been able to maximize our strengths on is the special orders from our stores which are primarily fulfilled from our online store. Those sales go to the stores themselves, so those are not included in our online sales numbers.

Okay. Then I guess you guys have long been great stewards of capital. Your cash balance is up big year over year. The dividend [subsequently] was down a little bit year over year last year. Can you talk about where you think that you have the potential in terms of cash returns to shareholders, how that can look at the back half of the year? Thanks.

I guess we declined making any forward comments on that. We'll just continue to review quarterly where we're at on opportunities, and where the cash value is to make those decisions.

Okay, thank you.

Dana Telsey, Telsey Advisory Group.

Good morning, everyone.

Good morning, Dana.

Hi. Can you please just touch on a little bit on the women's business, what you're seeing on the fashion part, and what changes you expect to happen as you go forward, and timing of any improvements? Thank you.

Pat, do you want to start with this?

Sure. Overall, we just continue to offer a broad variety in response to the guest requests. We'd say there's a key component of the relaxed lifestyle that's been a strong driver, and we have that covered, we think well from some of our private label brands, as well as some of our newer business partners. Our denim category, we continue to expand our selection there in fabrics and finishes and increased fit selection, so I just feel confident about the team's approach to the business and responding to the guests.

I'll add, Dana, I think the team has done a very nice job with our variety of tops and selection there, and our dress and skirt business continues to add to business. We've been very happy with that part of it.

As you see private and the branded mix, how should that change for both men's and women's?

I think right now, I would say it would be pretty consistent with the previous year. Bob, do you have any comments on that?

I'd say that's pretty accurate. We're going to stay pretty consistent.

Thank you.

Edward Yruma, KeyBanc.

Hi, good morning. Thanks for taking my question. Just a quick question on the balance sheet, inventory is a little bit better shape than fourth quarter, but payables were up. Anything we should think about there? Thanks.

Karen or Tom, do you want to take that?

Our merchandise payables were actually--

Excuse me, inventory was up, payables were down. Sorry about that.

Yes. Part of that is, part of that inventory is carrying over from the end of the year because I think as we talked about on our year-end call, some of the inventory was brought in a little bit earlier this year to be ahead of the Chinese New Year. We had that early flow of inventory, and so the flow of product during the first quarter was actually down slightly from a year ago on new receipts for the quarter, and so then that would result in fewer payables just because of the flow, the timing of the flow of that inventory.

Got it. Just a bigger picture question about denim price points, I know you guys have done a good job of adding more private label and having smart [track] of entry price points. At this stage, are you comfortable with the variety of price points you have? If not, where are other places you could add product? Thanks.

Ed, I think we're feeling pretty good about our price point selection. We have quite a variety from in the $50s, $60s, all the way up to well over $150.

It's just something the team has done a nice job of balancing the inventories for the selection of the guest, and as everything in our business, it keeps changing. We're continuing to evolve and test different categories and fabrics to see how far we can push the limit, but also give our guests that are more price-conscious a good quality and value as well.

Great. Thanks so much.

Thanks, Ed.

There are no further questions at this time.

All right. If there are no further questions, we again would like to thank everyone for participating in the call today, and wish everyone a great Memorial weekend.

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