Buckle Inc (BKE) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second-quarter earnings release conference.

(Operator Instructions)

As a reminder, this 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 Secretary; and Tom Heacock, Treasurer and Corporate Controller.

As they review the operating results for the second quarter, which ended August 2, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statements. 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 express written consent.

Any unauthorized reproductions or recordings of these calls should not be relied upon as the information may be inaccurate. And I would now like to turn the conference over to your host, Karen Rhoads. Please go ahead.

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

Our August 21, 2014 press release reported that our net income for the 13-week second quarter ended August 2, 2014 was $24.5 million, or $0.51 per share on a diluted basis. And that compares to net income of $25.1 million, or $0.52 per share on a diluted basis, for the prior-year 13-week second quarter that ended August 3, 2013.

Our year-to-date net income for the 26-week period that ended August 2, 2014 was $61.8 million, or $1.29 per share on a diluted basis. That compares to net income of $62.7 million, or $1.31 per share on a diluted basis, for the prior-year 26-week period ended August 3, 2013.

Net sales for the 13-week second quarter increased 1.4% to $235.7 million, compared to net sales of $232.5 million for the prior-year 13-week second quarter. Our comparable store sales for the quarter were down 0.5% in comparison to the same 13-week period in the prior year. And online sales, which are not included in comparable store sales, increased 1.7% to $17.1 million.

Net sales for the 26-week year-to-date period increased 1% to $507.4 million, compared to net sales of $502.2 million for the same period in the prior year. Comparable store sales for the year-to-date period were down 0.7% in comparison to the same 26-week period in the prior year, and online sales, which again are not included in comparable store sales, increased 2.1% to $38.6 million.

Gross margin for the quarter was 40.3%, down approximately 30 basis points from 40.6% for the second quarter last year. The decrease was driven by deleveraged occupancy, buying, and distribution expenses resulting from the comparable store sales decline.

Merchandise margins for the quarter were essentially flat. For the year-to-date period, gross margin was 41.8%, down approximately 30 basis points from 42.1% for the same period last year. The decrease was driven by deleveraged occupancy, buying, and distribution expenses resulting from the comparable store sales decline. Merchandise margins were again essentially flat.

Selling expense for the quarter was 19.7% of net sales, compared to 19.3% for the second quarter of FY13. Increases in store payroll 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 year-to-date period, selling expense was 18.5% of net sales, compared to 18.4% for the same period in FY13. And increase in store payroll expense was partially offset by a reduction as a percentage of net sales and expense related to the incentive bonus accrual.

General and administrative expenses for the quarter were 4.2% of net sales, compared to 4.4% for the second quarter of FY13, with the decline primarily attributable to reductions in equity compensation expense. For the year-to-date period, general and administrative expenses were 4.0% of net sales, compared to 4.1% for the same period in FY13, with the decline primarily attributable to reductions in equity compensation expense.

Our operating margin for the quarter was 16.4%, compared to 16.9% for the second quarter of FY13. For the year-to-date period, our operating margin was 19.3%, compared to 19.6% for the same period last year. Our other income for the quarter was $260,000, compared to $507,000 for the second quarter of FY13, and other income for the year-to-date period was $605,000, compared to $857,000 last year.

Income tax expense as a percentage of pretax net income was 37.3% for the second quarter of FY14, compared to 37.0% in the second quarter of FY13, bringing second-quarter net income to $24.5 million for FY14 versus $25.1 million for FY13. Year-to-date income tax expense was also 37.3% of pretax net income for FY14 and 37.0% for FY13, bringing year-to-date net income to $61.8 million for FY14, compared to $62.7 million for FY13.

Our press release also included a balance sheet as of August 2, 2014, which included the following. Inventory of $128.2 million, which was down approximately 4% from inventory of $133.6 million at the end of the second quarter of FY13. And total cash and investments of $230.5 million, which compares to $228.5 million at the end of FY13, and compares to $168.3 million at the same time a year ago.

As of the end of the quarter, inventory on a comparable store basis was down approximately 5.5% compared to the same time a year ago, and total markdown inventory was up compared to the end of the second quarter last year. We also ended the quarter with $166.0 million in fixed assets net of accumulated depreciation.

Our capital expenditures for the quarter were $12.6 million and depreciation expense was $7.8 million. For the year-to-date period, capital expenditures were $22.7 million, and depreciation expense was $15.5 million.

Year-to-date capital spending is broken down as follows. $17.2 million for new store construction, store remodels, and store technology upgrades. And $5.5 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 construction 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 2%, the average transaction value increased approximately 4%, and the average unit retail increased approximately 2%. For the year-to-date period, UPTs increased approximately 2.5%, the average transaction value increased approximately 3%, and average unit retail increased slightly.

Buckle ended the quarter with 456 retail stores in 44 states, compared to 452 stores in 43 states at the end of the second quarter of FY13. Additionally, our total square footage was 2.309 million square feet as of the end of the quarter, compared to 2.267 million square feet at the same time a year ago.

And now 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 lead to our 1.4% net sales increase for the quarter. Men's merchandise sales for the quarter were up approximately 6%, with strong categories including denim and casual bottoms, knit shirts, shorts, and accessories.

Average denim price points for the quarter increased from $89.95 in the second quarter of FY13 to $92.85 in the second quarter of FY14. For the quarter, our men's business was approximately 44% of net sales, compared to approximately 42% last year, and our average men's price points increased slightly from $50.10 to $50.40.

Women's merchandise sales for the quarter were down approximately 2%, with strong categories including sweaters, active apparel, and footwear. Average denim price points increased from $97.15 in the second quarter of FY13 to $98.65 in the second quarter of FY14.

For the quarter, our women's business was approximately 56% of sales, compared to approximately 58% last year, and our average women's price points increased approximately 2.5% from $42.90 to $43.95. For the quarter, combined accessories sales were up approximately 1% and combined footwear sales were up approximately 2%. These two categories accounted for approximately 9.5% and 6%, respectively, of the second quarter net sales, which compares to approximately 9.5% and 6% for each in the second quarter last year.

Average accessories price points were up approximately 6.5% and average footwear prices were up approximately 4%. For the quarter, denim accounted for approximately 36.5% of sales and tops accounted for approximately 32.5%, which compares to approximately 37.5% and 32% for each in the second quarter of last year.

Our private label business was essentially flat as a percentage of net sales for the quarter and continued to represent approximately 32% of sales. During the quarter, we opened eight new stores, closed two stores, and completed three substantial remodels. As of the end of the quarter, 356 of our 456 stores are in our newest format.

For FY14, we now anticipate opening 16 new stores in total, including four in September, October and three for holiday. We also anticipate completing 18 full remodels during FY14, including three that have already moved into their remodel space in August, four additional for fall, and two for holiday. And with that, we'll open it up to your questions.

(Operator Instructions)

Simeon Siegel, Nomura Security.

Thanks. Good morning, guys. So you did a great job clearing through inventory and you didn't take a hit to merch margin. You also didn't get a meaningful lift to sales.

So any color there? And what's the right way to think about inventory or gross margins looking further out?

And then, Karen, just quickly, it's not a large absolute number, but any quick thoughts on why the receivables went up so much? Thanks.

I think as we mentioned at the last call, that we had planned to bring in some of the spring/summer inventory early compared to the year before. And then that kind of played out as planned. And we're very comfortable with our inventory and our markdown level at this point.

Okay. And on the receivables, the biggest piece of that increase would be construction allowances from the new stores that are currently either completed or in progress.

Got it. Thanks. All right. Good luck with the back half.

Tom Filandro, SIG.

Hey guys. Congratulations to a managing in a tough environment here. I've got a question about the transaction performance. It's been challenging over the past couple of months.

You've got several weeks of high volume, back-to-school selling complete. I was wondering if you are seeing any change in the transaction environment?

And then on denim, specifically, the classification, at least some are suggesting the classification is trending lower this year. Could you guys provide us an update on what you're experiencing in denim across both mens and women? And maybe Pat and Robert can offer their insights as well?

And then I have one follow-up question on the digital pilot of your loyalty program, I don't know if that's underway yet. If you can you give any details on that, greatly appreciate it? Thank you.

Okay. As the script had, the men's denim, we had some good selling there. And on the ladies, we're seeing a variety of changes in the fabrics, the wider selection of different fits and styles, bottom openings, we think the selection we have going into the fall season will do us well.

But there certainly is a variety of changes from different rises and bottom openings and just the wide variety of colors going on there. So, we're looking forward to fall season. Bob or Pat, do you have anything else to add on that?

Yes, I think on the men's side, just the additional fabrics making denim work for more things than it did before from a comfort. And the stretch side on the men's side have probably been big helps to us in the lighter weight denim.

And on the women's side, I would just say coming out of spring and summer, we really had nice response to denim cross or denim shorts, some alternative fashion bottoms that are lighter weight, dresses, that type of thing. So it's just a bigger variety of requests on the women's side.

And in tune with that, our full-length denim, on the fabrics again in finishes, we feel good about the selection and have confidence in the sales team to take it to the guest to show them the newness. So I'd say overall, a good picture.

Karen, do you want to take the --

On the loyalty program, we have not started piloting the digital loyalty. There still working at this point in time on the CRM database, so it will be FY15 before we have electronic loyalty.

Did we get all the questions answered, Tom?

Dennis, just the first question was just any comments on the transaction performance being challenging first couple of months here. You've got some big volume back-to-school weeks complete behind you.

Just curious if you're seeing, from the consumer standpoint, any change in the way the consumer is reacting out there versus say a year ago or at least in the spring/summer season?

Well, our policy is not to comment on the present months, so I don't know that I can really answer that question, Tom.

I gave it a shot. You guys, best of luck. Thank you very much for the insight on denim.

Kate Fitzsimons, JPMorgan.

Yes, hello. Thank you for taking my question. My question is on the sourcing side, I was wondering if you guys are viewing any changes in cotton prices and whether AUCs could be an opportunity as we head into 2015?

Also, just you ended the quarter with a healthy cash position. Just can you speak to how you were looking at distributions of cash to shareholders potentially into the back half? Thank you.

Regarding the cash position, we just review that continually at Board meetings and looking at our opportunities, so we will continue that policy. The cotton prices is a benefit to some degree.

But in certain places, with some of the new fabrics that we want to do or some new finishes, and some of the labor offset that. So I don't know for us if that's going to be a great advantage that we can count on just because the price of cotton is lower now.

Okay. So fair to think maybe AUCs are neutral next year? Or flat?

Yes. I would guess at this point that would be, I would be comfortable saying that.

Okay. Thanks.

John Kernan, Cowen.

Yes, good morning, guys. It's a helpful color on the new stores and the remodels in the second half.

Can you help us understand where your long-term real estate plans sit? And in terms of where you are in terms of total remodels and how much more the store base can be remodeled?

We'll probably be able to give you a better update on the next call on that. We're still going through negotiations and planning for next year on remodels. I would expect fewer remodels next year than we had this year just based on opportunities.

And as far as new store growth, we will continue our strategy of looking at the opportunities and what makes sense for us and where we see the retail markets going in the future to decide new stores. And not set a planned number of stores and then work to hit that number.

Okay. And then just any comments on how you're viewing the promotional competitive environment as back-to-school evolves? Thanks.

I think the promotional environment continues to be pretty much the same as we've seen it for quite a while. Maybe even a little more.

That's why we work with our exclusive and developing our own brands and really having fashion and details that other people -- the way we see a lot of them is that they're just trying to hit the lowest price and sell by price. And we're looking at the total idea of fashion, style, comfort, and to give the exclusive product. And we also work with our brands as well to develop exclusive product that is special and gives the guest a reason to want to buy.

Okay. Thanks. Good luck.

Steve Marotta, CL King and Associates.

Good morning, everyone. Thank you for taking my question. As it pertains to the last call, there was commentary surrounding an expectation that inventory would actually be up at the end of the second quarter on a year-over-year basis.

That didn't happen. Can you talk a little bit about the dynamic and reconcile the comments with how inventory is down year over year? What happened during the quarter to change that?

Well, as always, the flow of the product sometimes comes in a little bit later than you planned. Or maybe there's styles that didn't get approved based on the quality or not hitting the standards or the requirements that we had. So there could have been some cancellations and such.

But for the most part, I guess we're trying to be a little conservative on our estimate, the second quarter, just to not set too big of expectation. But there's so much that goes on during the quarter, I would just say the flow of the product sometimes makes a difference there.

Okay. Thanks. And just a follow up, from an inventory standpoint you mentioned that the markdown inventory as a percentage of total is up on a year-over-year basis.

Can you quantify that? And I was maybe even a little surprised in light of the decline in inventory on a year-over-year basis that markdown inventory would be up. Usually it'd be the opposite.

I think -- sometimes that falls more on the timing and such. And like I say, we're comfortable with our inventory levels and where we're at. I don't -- anybody else have any other comments?

I don't know that we ever quantify how much markdown inventory there is or what increase it is. And looking at the buckets, the increase was really in the first couple buckets, so like Dennis said, we do feel good about where we're at.

Okay. Thank you.

(Operator Instructions)

Ed Yruma, KeyBanc Capital Markets.

Thanks for taking my question. Dennis, just in terms of store performance, we've seen a big tick down in corn prices. I know you have a lot of exposure to agricultural areas.

Historically, when you've seen this move in commodity prices, have you seen any kind of impact to your business?

What we see is just the performance of our store manager and what's new in the fashion lines and what our selection is that has the biggest impact. I don't study the farm programs or have any knowledge of where they get extra money for this or that and such. So, you'd have to talk to John Deere on that.

Got it. And then in terms of trends that you guys are excited about, you highlighted some interesting ones on the denim side.

Anything you saw at Magic or that interests you for your tops business? Thank you.

We had a good week of meetings and the teams were happy with some of the ideas they find. It's not like a long time ago where the shows really made a big difference of what's going on.

It's just another week of continually developing new product and playing off winners and looking for newness to build on for the future or test different styles. So, it's just one of many weeks that we're working on product to bring some freshness to our selection and give the guest what we want, what they want.

Great. Thanks so much.

Tom Filandro, FIG.

Hey guys, just a follow up. Two questions. One, private label, I may have missed this earlier, can you just update us on the private label performance during the quarter? How should we think about your private label positioning for the balance of the year?

And then also it looks like you've elevated your positioning in girls and boys offerings. I was hoping you can offer some details on how that's trending? Have you had any learns?

And I'm not sure if that's in all stores, and if it's not, what level of incremental sales did you experience from putting those offerings in? Thank you.

We're feeling good about our private label. We would expect it to be percentage-wise probably pretty equal to last year, maybe up slightly. But we're happy with our progress there and the selection we have with our different labels.

And the little gals and boys, we're continuing to see nice growth. We have still a very small part of our business. But we like what's going on there. And Pat and Bob, can you just comment on how many stores we have those in?

For little girls, we're in all stores for the denim program. And then we're continually evaluating the number for fall, for tops. Currently, for second quarter, we are in 130 stores for the top program for little girls.

And for youth boys, we're about 200 doors complete tops and bottoms and 225 just in denim only. And so far, as you said, the youth response has been pretty good.

Great. And Dennis can you give be more specific on the private label penetration for the quarter?

32%, so basically even with a year ago.

Thank you, Tom.

Lee Giordano, CRT Capital.

Thanks, good morning. Can you talk about your new store performance and how they're working out relative to your expectations? And then also do you have any specific areas in the country where you're looking to expand or is it pretty much a broad-based focus? Thanks.

Yes. We've been pleased with our new openings. And also an update with the mills project that we've opened, our regular price stores, that has worked out well.

And we have no targeted areas. We're just continuing to look at all of our states and surrounding areas to see what opportunities that we would be confident in.

Thank you.

And there are no further questions in queue. Please continue.

All right. Well, I think that concludes our part of the call, so at this time we would like to thank everyone for joining us again. And have a great day.

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