Buckle Inc (BKE) 2014 Q4 法說會逐字稿

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

(Operator Instructions)

And as a reminder, this conference is being recorded. Members of Buckle management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and Chief Financial Officer; 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; Tom Heacock, Vice President of Finance, Treasurer, and Corporate Controller.

As they review the operating results for the fourth quarter, which ended January 31, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement. Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: All forward-looking statements made by the Company involve material risk 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 they experience, or future changes make it clear that, any projected results expressed or implied there within are not 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 written express consent. Any unauthorized reproductions or recordings of the calls should not be relied on as information to be inaccurate.

At this time I would like to turn the conference over to our host, Chief Financial Officer, Ms. Karen Rhoads. Please, go ahead.

Thank you. And good morning, everyone. Thanks for joining the call this morning.

We want to share with you our results. Our March 13, 2015 press release reported that net income for the 13-week fourth quarter that ended January 31, 2015, was $60.1 million, or $1.25 per share on a diluted basis. That is compared to net income of $59.3 million, or $1.23 per share on a diluted basis, for the prior-year 13-week fourth quarter that ended February 1, 2014. Our net income for the 52-week fiscal year that ended January 31, 2015, was $162.6 million, or $3.38 per share on a diluted basis. That is compared to net income of $162.6 million, or $3.39 per share on a diluted basis, for the prior-year 52-week fiscal year that ended February 1, 2014.

Our net sales for the 13-week fourth quarter increased 4.3% to $353.5 million, compared to net sales of $339 million for the prior-year 13-week fourth quarter. Comparable store sales for the quarter were up 1.1% in comparison to the same 13-week period in the prior year. And our online sales, which for last fiscal year were not included in comparable store sales, increased 12.6%, to $33 million. Net sales for the 52-week fiscal year increased 2.2%, to $1.153 billion, compared to net sales of $1.128 billion for FY13. Comparable store sales for the fiscal year were flat in comparison to the same 52-week period in the prior year, and online sales, which are not included in comparable store sales, increased 6% to $94.3 million.

Gross margin for the quarter was 47.4%, down approximately 20 basis points from 47.6% for the fourth quarter last year. The decrease was driven by a 30 basis point reduction in merchandise margin, partially offset by reduction as a percentage of net sales, and certain other occupancy, buying, and distribution expenses. For the fiscal year, gross margin was 44%, down approximately 20 basis points from 44.2% for the same period last year. The decrease was driven by a 10% basis point reduction in merchandise margin, and an increase as a percentage of net sales in certain other occupancy, buying, and distribution expenses.

Selling expense for the quarter was 18.6% of net sales, compared to 18.5% for the fourth quarter of FY13. And for the fiscal year, selling expense was 18.4% of net sales, compared to 18.3% for FY13. General and administrative expenses for the quarter were 2.1% of net sales, compared to 1.3% for the fourth quarter of FY13. This was driven by an increase in equity compensation expense and certain other general and administrative expenses. For the fiscal year, general and administrative expenses were 3.3% of net sales, compared to 3.1% for FY13, driven by an increase in equity compensation expense, as well as increases in certain other, general and administrative expenses.

Our operating margin for the quarter was 26.7%, compared to 27.8% for the fourth quarter of FY13. For the full fiscal year, our operating margin was 22.3%, compared to 22.8% for FY13. Other income for the quarter was $1.9 million, compared to $2.2 million for the fourth quarter of FY13. And other income for the full fiscal year was $2.7 million, compared to $3.5 million last year.

Income tax expense as a percentage of pre-tax net income was 37.6% for the fourth quarter of FY14, compared to 38.6% in the fourth quarter of FY13, bringing fourth-quarter net income to $60.1 million for FY14, versus $59.3 million for FY13. For the full fiscal year, income tax expense was 37.4% of pre-tax net income for FY14 and 37.6% for FY13, bringing net income to $162.6 million, for FY14, compared to $162.6 million for FY13.

Our press release also included a balance sheet as of January 31, 2015, which included the following -- Inventory of $129.9 million, which was up approximately 4.5% from inventory of $124.1 million at the end of FY13, and total cash and investments of $203.3 million, which compares to $228.5 million, at the end of FY13. As of the end of the year, inventory on a comparable store basis was up slightly and total markdown inventory was up compared to the same time a year ago. We also ended the year with $172.7 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $9.2 million, and depreciation expense was $8.4 million. For the full fiscal year, capital expenditures were $45.5 million, and depreciation expense was $31.7 million.

Year to date, capital spending is broken down as follows -- $31.2 million for new store construction, store remodels, and store technology upgrades and $14.3 million for capital spending at the corporate headquarters and distribution center. We currently expect our FY15 capital expenditures to be in the range of $35 million to $39 million, which includes primarily new-store and store remodeling projects, IT investments, and completion of the construction of a new office building as part of our home office campus in Kearney, Nebraska.

For the quarter, UPTs increased approximately 3.5%. The average transaction value increased approximately 5%, and the average unit retail increased approximately 1.5%. For the full fiscal year, UPTs increased 2.5%, the average transaction value increased 4%, and average unit retail increased approximately 1.5%. Additionally, our average sales per square foot for the year were $459 compared to $461 in FY13. And our average sales per store was $2.3 million in both FY14 and FY13. The Buckle ended the year with 460 retail stores in 44 states, compared to 450 stores in 43 states at the end of FY13. Additionally, our total square footage is 2.343 million square feet as of the end of the year, compared to 2.271 million square feet at the same time a year ago.

At this time, I'd like to turn the call over to Tom Heacock, Vice President of Finance, 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 for both the quarter and the full fiscal year.

Men's merchandise sales for the quarter were up approximately 10%, with strong categories including denim and casual bottoms, woven and knit shirts, sweaters, outerwear and accessories. Average denim price points increased from $88.45 in the fourth quarter of FY13, to $91.25 in the fourth quarter of FY14. For the quarter, our men's business was approximately 47% of sales, compared to 44.5% last year. And our average men's price points decreased approximately 1% from $59.90 to $59.35.

For the full fiscal year, men's merchandise sales were up approximately 7%, with strong categories again including denim and casual bottoms, knit shirts, sweaters, shorts, outerwear, and accessories. Average denim price points increased from $89.15 in FY13 to $92.05 in FY14. For the full-year, our men's business was approximately 43.5% of sales, compared to 41.5% last year, and our average men's price points increased slightly from $55.60 to $55.85.

Women's merchandise sales for the fourth quarter were flat in comparison to the same period last year, and strong categories included woven and knit tops, sweaters, active apparel, outerwear, and footwear. Our average denim price points on the women's side decreased from $98.85 in the fourth quarter of FY13 to $98.20 in the fourth quarter of FY14. For the quarter, our women's business was approximately 53% of net sales, compared to 55.5% last year, and our average women's price points increased approximately 4.5% from $49.80 to $52.05.

For the full fiscal year, women's merchandise sales were down approximately 1%, with strong categories including casual bottoms, woven and knit tops, sweaters, active apparel, outerwear, and footwear. Our average denim price points for the full year increased from $98.40 in FY13 to $98.90 in FY14. For the year, our women's business was approximately 56.5% of net sales, compared to 58.5% last year, and average women's price points increased approximately 1.5% from $48.15 to $49.

For the quarter, combined accessory sales were up approximately 4.5% and combined footwear sales were up approximately 10%. These two categories accounted for approximately 9% and 5.5% respectively of fourth-quarter net sales, which compares to 9% and 5% for each in the fourth quarter of FY13. Our average accessory price points were up approximately 3.5%, and average footwear price points were up approximately 12.5%. For the full fiscal year, combined accessory sales were up approximately 3%, and combined footwear sales were up approximately 4.5%. These two categories accounted for 8.5% and 6% respectively of net sales for both FY14 and FY13. Average accessory price points were up approximately 3.5% for the year, and average footwear price points were up approximately 8.5%.

For the quarter, denim accounted for approximately 46.5% of sales, and tops accounted for approximately 31.5%, which compares to 48.5% and 30.5% for each in the fourth quarter of last year. For the full year, denim accounted for approximately 43.5% of sales, and tops accounted for approximately 31%, which compares to 45.5% and 30% for each in FY13. Our private label business was up slightly as a percentage of sales for both the quarter and the year, and represented approximately 35% of sales for the full year.

During the fourth quarter, we opened 2 new stores, completed 1 substantial remodel, and closed 3 stores post-holiday bringing our count for the full year to 16 new stores, 18 full remodels, and 6 store closures. As of the end of the year, 365 of our 460 stores were our newest format. For 2015, we anticipate opening 9 new stores, which includes 2 stores that opened earlier this week, 1 additional for spring, 1 for back to school, and 5 for holiday. We also anticipate completing 11 substantial remodels during the year. And by season, we anticipate 6 of the remodel stores will be completed for spring, and 5 will be completed for back to school. Planned new store openings for spring including stores in Mount Pleasant, South Carolina; Omaha, Nebraska; and Bradley, West Virginia.

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

(Operator Instructions)

Our first question today comes from Ed Yruma with KeyBanc Capital. Please, go ahead.

Hi, guys. Thanks for taking my question. Dennis, a bigger question first. 2014 was really the first kind of flattish earnings you guys have had since 2008.

I'm just trying to understand, was it the environment, was it denim, was there something you could have done differently? And then, is this the earnings trajectory we should expect from Buckle going forward?

Good morning, Ed. Well, I think it was a combination of things. The denim cycle in the ladies was a little more challenging after all our years of growth. So that was a little bit of it.

I think the challenging environment was part of it, so a combination of things. I'm sure there's things we are working on to continue to improve that we feel like we're in a very good position going forward. And as you know, we don't make forward projections, so thank you.

Got it. And a follow-up. I was wondering if you can give us an update on how the kid's assortment in the stores that you have is performing, and whether this is something you expect to take more spaces in the store? Thank you.

Yes, we've been pretty happy with our kid's business. And I know in the boy's part of it, we plan to expand more stores for back to school.

Spring and summer, we are kind of maintaining the status quo for the number of stores we have. But it's been a nice plus. Still a very small part of our business, but we do like it.

Great. Thanks so much.

Thank you.

Our next question today comes from the line of Simeon Siegel representing Nomura Securities; please, go ahead.

Thanks, good morning, guys.

Good morning.

Karen, can you talk about the merch margin dynamics? With [AUR] up but merchandise margins down, is that mainly driven by mix? And then, to the past question, how do you view the promotional environment in general?

What's the right way to think about that going forward? And then, I think you had initially said it would be minimal, but can you just update, was there any impact from the port strike? Thanks.

I was going to say, I'll let the merchandisers cover the port strike. But on the merch margin, I think a little bit of it came from markdowns. It would be combined a little bit with product mix.

But actually where we kind of cleaned up on the markdowns at the end of the year, I think we feel pretty good about where that product is at the current time. I don't know, Dennis, if you have any further comments on markdowns.

No, I mean, it's pretty much a seasonal deal and kind of hits certain points. But we feel very good about our margin, our inventory, so we're ready for spring there.

On the port strikes, we did have several categories that impact to a certain degree, and probably started toward mid, late November, we started seeing the impact and had deliveries anywhere from 2 to 10 weeks late. And so that has had an effect in starting for spring.

Okay, great. Thanks, guys, and best of luck for the coming year.

Thank you.

Our next question today comes from the line of Thomas Filandro with SIG. Please go ahead, sir.

Nice job, again, on another quarter of solid business execution for all.

Thanks, Tom.

Hey, Dennis, could you expand, or maybe Karen as well, expand a little more on that port comment? Is there lingering issues here that we should be concerned about? Are you seeing any staggering of product coming in for the spring season? And then, I have two other questions. Just that one quick, please.

Okay. Yes, we still have some delays on some of our product. We have started to see a better pickup over the last 10 days on product coming in. But there could still be some impact to that business.

And the next question I have is sort of an odd question, but there has been some concern out there that your business could be negatively impacted in the so-called shale states, with employment issues. So I'd be curious if you've experienced any regional variance in the business and, particularly, trying to highlight those shale states.

And then a question for both Pat and Bob. Can you tell us what you're seeing in terms of trends for either brands or silhouettes in denim and any comments about any trends in tops for spring? Thank you.

Okay, regards to the regional, through fourth quarter, we did not see any real change in what was going on in our stores. So I will defer to Bob and Pat now.

Thank you.

Well, on the men's side for denim, we're seeing some movement toward the straights or kind of the slimmer bottom openings, a lot of light and destructed seems to be working. From the topside, we've just really continued to get past the competitors as far as bodies, fabrics, washes, colors, blocking -- just making the product a lot more interesting. So on a 360-degree look of the product, you would see details on all aspects of the product.

Thank you, Bob.

And good morning, this is Pat. And on the denim side for the ladies, what I really enjoy is that we kind of had a quiet cycle there on denim. It was very a singular focus.

And I see that opening up a little bit, which we're loving, plays kind of into our strong suit, more destructed denims, just some nice abrasions and a variety of fabrics and finishes. So we feel good about the denim picture.

Our tops continue to be a great mix of private label and branded. We have a brand, in-house brand by Gimmicks, which is kind of a cornerstone brand for us. And it's performing very well and just enhances the whole top selection. But we're getting West Coast brands, a nice blend of in-house brands, and overall feeling pretty good about the mix.

Excellent. Best of the continued success.

Thank you.

Next we'll go to the line of Paul Alexander with BB&T Capital. Please, go ahead.

Hi, guys. Thanks for the question. Just a follow-up on that denim point, do you think there's enough trend out there now where you think you can return women's denim to positive territory?

And then a follow-up question, can you talk about the increase in eCommerce growth in fourth quarter? Was that driven by new investments or projects, or was it more clearance related? And does that channel of outperformance versus stores make you think any differently about e-commerce investment going forward? Thank you.

This is Dennis. I'll take the gal's denim part. We're seeing more interest in a variety of brands, as well as what Pat mentioned, as far as different finishes. And we're still selling a variety of different fits, and so we are encouraged with what we have going on there. And then, Kyle, do you want to comment on the online?

Sure. We increased our support for paid search, and that also led to some new acquisition strategies, primarily in fourth quarter, and then worked with some targeted display services, tested some of those, and then actually increased our e-mail volume.

Thank you.

I just might add -- this is Pat again. I might add to that. I think our teams did an excellent job of maximizing the inventory levels as we went into the quarter and getting us in good shape on our product selection.

We've also worked on enhancing our visual presentation of product online and have a team focused on that aspect going forward. And then there's more of an overlap there with merchandising, and we have Kelli Molczyk who's working closely with that team as well.

Thank you, Paul.

Our next question comes from the line of Liz Pierce representing Brean Capital. Please, go ahead.

Nice job on the quarter. I'm going to just follow up on a couple of the questions that have already been asked. On the kid's business, Dennis, so you mentioned that you're going to expand the boys. But I've noticed that there seems to be more visuals on the website, on all of them, so does that mean the girls is outperforming on the web versus the store?

We started the ladies side more aggressively than the boys and, actually, 6 to 12 months ahead of the boys. So we have expanded the product lines there and have a little more experience with it. And so what you'll see for back to school is the men's adding additional stores to have about the same level as the ladies.

Okay. So, basically, playing catch-up.

Somewhat, yes.

Okay. All right. Well, it looks really cute.

And I also just wanted to say to Pat on her visuals -- because I think that the website looks so much better, and I was wondering if that had a lot to do with the [year-over-year] increase, but clearly it's a couple things. So anyway, that's all I have. Thank you and best of luck.

Thank you.

(Operator Instructions)

We will go to the line of Steve Marotta with C.L. King & Associates. Please, go ahead.

Good morning, everybody. Can you please talk about eCommerce initiatives for the current year? And what's going on there in order to drive increased sales? Thank you.

Thanks for the question. In addition to working with the visuals, as Pat mentioned, we are going to continue just to review our paid search programs, as well as looking at strengthening our re-targeting services through display and new acquisition, while making sure that we're watching our e-mail list attrition rate and being wise in how we're spending our dollars there on marketing perspective.

And the only thing I can think to add there is we do have the same overlap on to our e-mail approach, which I think is working well.

Thank you.

And we will go to the line of Lee Giordano with CRT capital. Please, go ahead. Mr. Giordano? Well, apparently he took himself out of cue.

(Operator Instructions)

And we will go back to Mr. Giordano's line. Please go ahead.

Hi, you can hear me?

Yes, good morning, Lee.

Good morning. Just on the nine new stores for this year, wondering if that's the maximum, if the plans are finalized or if you might be ramping that up even further? That's it. Thanks.

It's possible that there could be another one or two added, but for planning stages, it's getting a little late, so I would -- my best guess is that we'll stay at nine.

Thank you.

Yes.

Presenters, there are no other participants queuing up at this time.

Okay, with no other calls coming in then or questions coming up, we would like to thank everybody for joining us today and wish everyone a great weekend.

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