Buckle Inc (BKE) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to The Buckle's second-quarter earnings release. 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; Kelli Molczyk, 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, Vice President of Finance, Treasurer and Corporate Controller.

As they review the operating results for the second quarter, which ended July 30, 2016, 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 not 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 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 upon, as the information may be inaccurate. Today's conference call will also be recorded and available for replay.

I would now like to turn the conference over to Karen Rhoads. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining the call. Our August 19, 2016, press release reported that net income for the 13-week second quarter ended July 30, 2016, was $15.5 million, or $0.32 per share on a diluted basis. And that compares to net income of $23.5 million, or $0.49 per share on a diluted basis, for the prior-year 13-week second quarter that ended August 1, 2015. Our year-to-date net income for the 26-week period ended July 30, 2016, was $38.6 million, or $0.80 per share on a diluted basis, compared to net income of $57.1 million, or $1.18 per share on a diluted basis, for the prior-year 26-week period ended August 1, 2015.

Net sales for the 13-week second quarter decreased 10.1%, to $212.2 million, compared to net sales of $236.1 million for the prior-year 13-week second quarter. Comparable-store sales for the quarter were down 10.8% in comparison to the same 13-week period in the prior year. And our online sales increased 1.4%, to $20.4 million. Year-to-date net sales decreased 10.2%, to $455.7 million, for the 26-week fiscal period ended July 30, 2016. And that compares to net sales of $507.4 million for the prior-year 26-week fiscal period ended August 1, 2015. Comparable-store sales for the year-to-date period were down 10.9% in comparison to the same 26-week period in the prior year. And online sales decreased 0.9%, to $43.9 million.

As noted in this morning's press release, net sales for the 13-week and 26-week fiscal periods ended July 30, 2016, are reported net of the impact of both reward redemption and accruals for estimated future rewards related to the Company's new guest loyalty program. The loyalty program launched during the fiscal quarter that ended August -- or, I'm sorry, April 30, 2016.

Absent the impact of the new loyalty program, total net sales for the second quarter were down 8.7%, and comparable-store sales were down 9.3%. For the year-to-date period, total net sales were down 8.8%, and comparable-store sales were down 9.6%.

Gross margin for the quarter was 37.7%, down approximately 240 basis points, from 40.1% for the second quarter last year. The decrease was driven primarily by de-leveraged occupancy, buying, and distribution expenses resulting from the comparable-store sales decline, which had about a 250-basis-point impact. And that was partially offset by a reduction in expense related to the incentive bonus accrual.

Merchandise margins for the quarter were flat. Factoring out the impact of the new loyalty program, merchandise margins for the quarter would have been down approximately 60 basis points. And for our year-to-date period, gross margin was 38.3%, down approximately 270 basis points, from 41.0% for the same period last year. The decrease was driven primarily by deleveraged occupancy, buying and distribution expenses resulting from the comparable-store sales decline, which had about a 215-basis-point impact, and by a 65-basis-point reduction in merchandise margins, which were partially offset by a reduction in expense related to the incentive bonus accrual. Without the impact of the new loyalty program, merchandise margins for the year-to-date period would have been down approximately 80 basis points.

Selling expense for the quarter was 21.7% of net sales. And that is compared to 19.7% of net sales for the second quarter of FY15, with increases as a percentage of net sales in store payroll, marketing, and certain other selling expenses, partially offset by a reduction in expense related to the incentive bonus accrual. For the year-to-date period, selling expense was 20.5% of net sales, compared to 18.8% of net sales for the same period in FY15, with increases as a percentage of net sales in store payroll, marketing, and certain other selling expenses. Again, these were partially offset by a reduction in expense related to the incentive bonus accrual.

General and administrative expenses for the quarter were 4.6% of net sales, compared to 4.7% of net sales for the second quarter of FY15. For the year-to-date period, general and administrative expenses were 4.5% of net sales for both fiscal periods.

Our operating margin for the quarter was 11.4%, compared to 15.7% for the second quarter of FY15. For the year-to-date period, our operating margin was 13.3%, compared to 17.7% for the same period last year.

Other income for the quarter was $595,000, compared to $272,000 for the second quarter of FY15. And other income for the year-to-date period was $1 million for both fiscal years.

Income tax expense as a percentage of pretax net income was 37.3% for the second quarter of both FY16 and FY15, bringing second-quarter net income to $15.5 million for FY16 versus $23.5 million for FY15. Year-to-date income tax expense was also 37.3% for both FY16 and FY15, bringing year-to-date net income to $38.6 million for FY16 versus $57.1 million for FY15.

Our press release also included a balance sheet as of July 30, 2016. The balance sheet included the following: inventory of $144.3 million, which was down approximately 4.5% from inventory of $150.8 million at the end of the second quarter of FY15; and total cash and investments of $234.9 million, which compares to $231.5 million at the end of FY15 and $190.8 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%, and total mark-down inventory was up compared to the same time a year ago. We ended the quarter with $173.5 million in fixed assets net of accumulated depreciation.

Our capital expenditures for the quarter were $9.2 million and depreciation expense was $8.2 million. For the year-to-date period, capital expenditures were $17.1 million and depreciation expense was $16.1 million. Year-to-date capital spending is broken down as follows: $15.9 million for new-store construction, store remodels, and store technology upgrades; and $1.2 million for capital spending at the corporate headquarters and distribution center. We now expect our FY16 capital expenditures to be in the range of $28 million to $32 million, which includes primarily new-store and store-remodeling projects, and certain IT investments.

For the quarter, UPTs increased approximately 1.5%. The average unit retail decreased approximately 3% and the average transaction value decreased approximately 2%. For the year-to-date period, UPTs increased slightly, the average unit retail decreased approximately 1.5%, and the average transaction value decreased approximately 1.5%.

Buckle ended the quarter with 470 retail stores in 44 states, compared to 464 stores in 44 states at the end of the second quarter of FY15. Additionally, our total square footage was 2.397 million square feet as of the end of the quarter, compared to 2.352 million square feet at the same time a year ago.

And at this time, I would like to turn the call over to Tom Heacock, our Vice President of Finance, Treasurer and Corporate Controller.

Good morning, and thanks for being with us this morning. I would like to start by highlighting the performance from our various merchandise categories for the quarter. Men's merchandise sales for the quarter were down approximately 5%. Average denim price points decreased from $94.40 in the second quarter of FY15 to $92.80 in the second quarter of FY16. For the quarter, our men's business was approximately 48.5% of net sales, compared to 46% last year, and our average men's price points decreased approximately 1%, from $50.75 to $50.25.

Women's merchandise sales for the quarter were down approximately 13%, with average denim price points decreased from $95.45 in the second quarter of FY15 to $87 in the second quarter of FY16. For the quarter, our women's business was approximately 51.5% of sales, compared to 54% last year, and our average women's price points decreased approximately 6.5%, from $46.50 to $43.40.

For the quarter, combined accessory sales were down approximately 5.5%, and combined footwear sales were down approximately 9.5%. These two categories accounted for approximately 10% and 5.5%, respectively, of second-quarter net sales, which compares to 10% and 5.5% for each in the second quarter of FY15. Average accessory price points were up approximately 4%, and average footwear price points were down approximately 3.5%.

For the quarter, denim accounted for approximately 33.5% of sales and tops accounted for approximately 32.5%, which compares to 35% and 32.5% for each in the second quarter last year. Our private-label business was down just slightly as a percentage of sales and represented approximately 32% of sales for the quarter.

During the quarter, we opened three new stores, completed six full remodels, and closed one store. As of the end of the quarter, 390 of our 470 stores were in our newest format. For the full-year FY16 we still anticipate opening a total of five new stores, including two remaining for holiday. We also still anticipate completing 19 full remodels, including 3 that have already moved back into their remodeled space in August, and 4 remaining for the rest of the year.

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

(Operator Instructions)

Jessica Schmidt, KeyBanc.

Just quickly, first, I just wanted to ask about some of the new merchandise that you've gotten into the store. Could you just talk a little bit about how that's resonating with the customer, and if you think that some of the changes that you made are in the right direction?

Okay. Thank you, Jessica.

Bob, do you want to take the men's side, and then we'll have Kelli address that in the ladies?

Sure.

As far as new product goes, we've lowered some price points and brought in a few more basics. Otherwise, the men's side, it's continuing fairly closely to where it's been.

On the women's side, we are starting to introduce new brands and new fashion trends just to tap into the trends we're seeing within the consumer behavior, as well as trends within the market. And so far the response has been good.

Was there anything else, Jessica?

No. That was helpful. And then just on the inventory positioning, I know that you've been working to clear through a lot of that old merchandise. But now that inventories are beginning to realign more with sales trends, how do you feel about the inventory position on the old merchandise, and then your inventory position with some of the new merchandise?

I would say we feel good about our inventory situation. And the older merchandise, I think, is accounted for appropriately. So, we're looking forward to proceeding, and the stores are giving us a good response on the new selections. So, thank you.

I think one additional comment on the men's is that we are getting cleaner, in some respects, as well, which is addressing a new guest [for us].

Great. I will pass it along.

Simeon Siegel, Nomura Securities.

This is Julie Kim on for Simeon Siegel. Thank you for taking our question.

It looks like online sales growth has slowed down in the past couple of quarters. Could you talk about what the main drivers are for that? Thank you.

Yes. We changed platforms toward the end of May. We needed to move off our existing web-based platform. So we did have some bugs to work through as we did that. Kyle, do you have any other comments on that?

I think we're just continuing to optimize the guest experience with the new web platform, as you mentioned, Dennis, and excited to see how the new guests are using it on mobile and on any channel that they wish to shop in.

Great. And can you give any more color on how performance has changed at all from the website from online, considering the new change to the new website platform?

We did have some disruption as we started, but as we've worked through those, that is getting more to a normal case.

All right. Thank you.

(Operator Instructions)

Adrienne Yih, Wolfe Research.

This is Doug Drummond on for Adrienne today. Thanks for taking our question. You obviously ratcheted back your inventory in Q2 2016. How much of this pullback is related to slowing down denim purchases?

And you mentioned that you saw an uptick in markdown inventory. Was that planned? And are you comfortable with those levels now? Thanks.

Yes.

As I mentioned before, we are comfortable with our inventory and our markdown level. I would say that we're starting to bring in some new denim. But the denim is running close to last year levels, as I remember. It's just being smarter on certain categories. And some of the cold weather merchandise of sweaters and outerwear, we're bringing in more into the season. So, we're happy with where we're at on our inventory at this time.

Okay. And just if I could follow up on the markdowns, when you do clear through that, do you have a preference between utilizing online or in-store? And how do you view that? Thanks.

We do a combination and we balance markdown inventory, like we do our other product for stores that are selling certain categories and online. We take a Company approach to move through it. Online works pretty well with that, though.

Okay. Thanks a lot. I appreciate it.

Tiffany Kanaga, Deutsche Bank.

Would you walk us through the puts and takes for how you're looking to keep SG&A in check as the top line is still under pressure? Where do you see opportunity to reduce spend? And where do you think further investment is necessary to help drive traffic and sales?

On the expense part, we're continuing to review the sales expense in the store and trying to be smarter on that. In several areas I think we continue to always work smarter about our supplies and this part of it.

We also review our marketing expense going forward to see if we can be more value for the money on that particular category. But overall we'll look at that as well as, in the future, review store leases as they come up to see where we can benefit, as well.

And if I could follow up and build on the prior question, could you give us an update as to how you're thinking about price points in both men's and women's denim? And where do you anticipate the average price point ultimately settling for you?

I think on the price points they covered today, I think that's going to be pretty close going over the next six months. We certainly brought down inventories to some of our higher-priced brand levels due to -- you know, balance the inventory with the sales, as well as several of our new brands are more in the $60 to $70 range. So that's having an effect on our denim pricing in the stores.

I think it was about 10% down from the quarter, and I would say that's probably close going forward. Just as we see the value or the styling, as such, that there's not as much in the higher-price brands that we will be able to put in the stores at this time.

Thank you so much.

(Operator Instructions)

In a few moments I am showing no further questions in queue. Please continue.

All right, Cynthia. If we have no further questions we would again like to thank everyone who joined the call today. And hopefully we were able to answer the questions that were presented. Thanks and we wish everyone a good weekend.

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