Buckle Inc (BKE) 2014 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the third-quarter earnings release for The Buckle. Members of The Buckle's management on call today are Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and CFO; Pat Whistler, 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 results for the third quarter, which ended November 1, 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 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 the calls should not be relied on, as the information may be inaccurate. I'd now like to turn the conference over to Ms. Karen Rhoads.

Thank you. Good morning, everyone. Thanks for joining the call. Our November 20, 2014 press release reported that our net income for the 13-week third quarter that ended November 1, 2014, was $40.6 million, or $0.84 per share on a diluted basis. And that's compared with the same $40.6 million a year ago, or $0.85 per share on a diluted basis, for the prior-year 13-week quarter that ended November 2, 2013. Year to date, our net income for the 39-week period ended November 1, 2014, was $102.4 million, or $2.13 per share on a diluted basis, compared to net income of $103.3 million, or $2.15 per share on a diluted basis, for the prior-year 39-week period that ended November 2, 2013.

Net sales for the 13-week third quarter increased 1.9%, to $292.2 million, compared to net sales of $286.8 million for the prior-year 13-week third quarter. Comparable-store sales for the quarter were down 3/10 of 1% 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 3.8%, to $22.8 million. Net sales for the 39-week year-to-date period increased 1.3%, to $799.6 million, compared to net sales of $789 million for the same period in the prior year. Comparable-store sales for the year-to-date period were down 5/10 of 1%, in comparison to the same 39-week period in the prior year; and online sales, which, again, are not included in our comparable-store sales, increased 2.8%, to $61.4 million.

Gross margin for the quarter was 43.7%, down approximately 30 basis points from 44% for the third 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 42.5%, down approximately 30 basis points from 42.8% for the same period last year. The decrease was driven, again, by deleveraged occupancy, buying and distribution expenses resulting from the comparable-store sales decline, and our merchandise margins year to date are also essentially flat.

Selling expense for the quarter was 18.1% of net sales, even with 18.1% of net sales for the third 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 and certain other selling expenses. For the year-to-date period, selling expense was 18.4% of net sales, compared to 18.3% for the same period in FY13. Increases in store payroll 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.

Our general and administrative expenses for the quarter were 3.5% of net sales, compared to 3.6% for the third quarter of FY13, with the decline primarily attributable to a reduction in equity compensation expense. For the year-to-date period, general and administrative expenses were 3.8% of net sales, compared to 3.9% for the same period in FY13, again, with the decline primarily attributable to a reduction in our equity compensation expense.

Our operating margin for the quarter was 22.1%, compared to 22.3% for the third quarter of FY13. For the year-to-date period, our operating margin was 20.3%, compared to 20.6% for the same period last year. Other income for the quarter was $226,000, compared to $361,000 for the third quarter of FY13. And other income for the year-to-date period was $831,000, compared to $1.2 million last year.

Income tax expense as a percentage of pre-tax net income was 37.3% for the third quarter of FY14, and that is compared to 37% in the third quarter of FY13, bringing third-quarter net income to $40.6 million for FY14, compared to $40.6 million for FY13. Year to date, our income tax expense was also 37.3% of pre-tax net income for FY14 and 37% for FY13, bringing year-to-date net income to $102.4 million for FY14, compared to $103.3 million for FY13.

Our press release also included a balance sheet as of November 1, 2014, which included the following: inventory of $147.2 million, which was up slightly from inventory of $146.3 million at the end of the third quarter of FY13; and total cash and investments of $252.4 million, which compares to $228.5 million at the end of FY13 and also compares to $195.6 million at the same time a year ago. As of the end of the quarter, inventory on a comparable-store basis was down approximately 1.5% compared to the same time a year ago. Total markdown inventory was down compared to the end of the third quarter last year. We also ended the quarter with $171.3 million in fixed assets, net of accumulated depreciation.

Our capital expenditures for the quarter were $13.6 million, and depreciation expense was $7.8 million. For the year-to-date period, capital expenditures were $36.3 million, and depreciation expense was $23.3 million. Year to date, our capital spending is broken down as follows: $26.2 million for new store construction, store remodels, and store technology upgrades; and $10.1 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 2%, the average transaction value increased 5%, and the average unit retail increased approximately 2.5%. For the year-to-date period, UPTs increased approximately 2.5%, the average transaction value increased 3.5%, and the average unit retail increased approximately 1%.

Buckle ended the quarter with 461 retail stores in 44 states, and that is compared to 452 stores in 43 states at the end of the third quarter of FY13. Additionally, our total square footage was 2.332 million square feet as of the end of the quarter, compared to 2.273 million square feet at the same time a year ago. And, 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 this morning. I'd like to start by highlighting the performance from our various merchandise categories that led to our 1.9% net sales increase for the quarter.

Men's merchandise sales for the quarter were up approximately 8%, with strong categories including denim and casual bottoms, knit shirts, shorts, outerwear, and accessories. Average denim price points increased from $88.70 in the third quarter of FY13 to $91.95 in the third quarter of FY14. For the quarter, our men's business was approximately 41.5% of sales, compared to approximately 39% last year; and our average men's price points increased slightly, from $57.35 to $57.60.

Women's merchandise sales for the quarter were down approximately 1.5%, with strong categories including casual bottoms, woven and knit tops, sweaters, active apparel, outerwear, and footwear. Average denim price points increased from $98.25 in the third quarter of FY13 to $98.80 in the third quarter of FY14. For the quarter, our women's business was approximately 58.5% of net sales, compared to approximately 61% last year; and our average women's price points increased approximately 2%, from $50.75 to $51.80.

For the quarter, combined accessory sales were up approximately 3% and combined footwear sales were up approximately 5.5%. These two categories accounted for approximately 8.5% and 6%, respectively, of third-quarter sales, which compares to approximately 8% and 6% for each in the third quarter of last year. Average accessory price points were up approximately 4%, and average footwear price points were up approximately 13%.

For the quarter, denim accounted for approximately 46.5% of sales and tops accounted for approximately 31%, which compares to 48.5% and 30.5% for each in the third quarter of last year. Our private-label business was essentially flat as a percentage of net sales for the quarter and represented approximately 35% of sales.

During the quarter, we opened 5 new stores and completed 8 substantial remodels. As of the end of the quarter, 365 of our 461 stores were in our newest format. We also opened 2 additional new stores and completed 1 full remodel during the second week of fiscal November, which puts us at 16 new stores and 18 substantial remodels in total for FY14. Current plans for next year include approximately 6 new stores and 10 substantial remodels.

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

(Operator Instructions)

Paul Alexander, BB&T Capital Markets.

Hello, guys. Thanks for the question.

Dennis, could you talk a little bit about your philosophy on e-commerce versus stores? We know you've really focused mainly on stores in order to leverage your salespeople and their relationship with the customer. But as e-commerce continues to become more mainstream, do you think you're going to need to step up investment in that online platform in order to serve your customers, keep up with competitors and tap into that secular shift?

Well, we continue to look at new marketing and upgrading our staff and taking different approaches, so it is something we are not ignoring. We involve the merchandise teams continually more on that. So we would expect it to continue to have steady growth, and we have taken an approach that it's part of our business.

We do a lot of special orders, where the guest can pick up in store on the specials at no freight charge and such, that way. And we have a lot of guests that take advantage of that. So I think as a part of our strategy, it is still very good and would expect it to continue to grow.

Just a follow-up on the steam, on your upcoming app, could you give us any more detail on that, how you're developing the app, what the timeline looks like for its release, and what kind of features it will have?

Kyle, do you want to address that?

Sure. Yes. We have consistently upgraded our mobile experience. And with respect to an app, specifically, we don't have any time frame for a launch on an app. But we are definitely listening to our guests and making sure that whatever we would launch would show the product and different features and services that our guests want.

All right. Thank you.

Thank you.

Steve Marotta, CL King & Associates.

Good morning, everybody.

Has the West Coast port slowdown interfered at all with inventory shipments in the last few weeks?

Steve, this is Dennis.

The ports have had just minor affect on our inventory flow on some of the shipments, maybe a week, 10 days. But overall, our flow has been very good. And a couple of our promotions, gift with purchase promotions, might be delayed a couple days on this month. But overall, we are in good shape, at this point.

Okay. Thank you.

One other question. As it pertains specifically to women's denim, it's been relatively soft multiple quarters in a row. How would you assess the women's denim market? And is it yoga pants that's having a very large impact there? What your view of women's denim weakness and when it may turn around?

Well, the ladies denim has been soft. I think the knit pants and activewear has had an effect on it. But it had such humongous growth for us over the last 10 years that it's still a very good business. We continue to add different vendors. But we have a lot of different fits, finishes, and ideas that we're working with, so it's still a good business for us.

And what's the percent of sales, roughly, currently as a consolidated total of women's denim?

Tom or Karen, do you have that number?

In total, it's about 46.5%, which is down a couple of percent. I don't know that I have --

Total denim.

Total denim, men's and women's. I don't know that I have what percentage of that is women's.

And women's is the larger piece of the two.

Thank you very much.

Thank you.

(Operator Instructions)

Alexander [Gample], SIG.

Hello. It's actually Tom Filandro. I hope you guys are doing well.

Good morning, Tom.

Dennis, can you give us an update on the -- I'm curious about the kids business. It looks like you're starting to get more aggressive there. Can you tell us what's happening in girls, what's happening in boys, and how you see that business rolling out going into the balance of this year and into next year, please?

We've got a nice presentation for holiday. It continues to grow nicely, but is still overall a very small part of our business.

I believe in the boys -- Bob, you've added, what, some tees and stuff, up to 250 stores? Is that right?

For holiday, yes, that's correct.

Okay. In the ladies, we have the little girls denim in all stores. And right now, we have tops in 150 stores, Pat, is that correct?

Yes, about 150 stores for holiday.

Yes. And I think we're adding that for -- we'll be adding more tops for the little gals as we get into back to school next year. So we're happy with the business, but continuing to grow it and trying to be smart about it.

And let me follow-up -- I apologize, I got on late. So if you answered this question, I do apologize. Can you just give us an update on the private label performance for the quarter?

And then also -- I don't know if you mentioned this -- any update on the loyalty program getting to the point where it's a digital program through the POS system?

Yes. On the private label, it's still about 35% of our business. So we're very pleased with that. And we have it at different levels in all categories. So that's been good. And Karen, do you have anything on the CRM?

On the CRM, our IT team continues to work with our third-party provider on developing that system and anticipates testing in first quarter of 2015.

Testing. Fantastic. Well, thank you very much. Best of luck for the holiday season.

Thank you.

Thanks, Tom.

And at this point, we have no further questions in queue.

All right. At this time, then, we would like to thank everyone for joining the call today and wish everyone a great day.

Thank you.

Thank you, ladies and gentlemen. That does conclude the conference here for today. We do thank you for your participation and using AT&T. You may now disconnect.