Buckle, Inc. (The)

Ladies and gentlemen, thank you for your patience and holding, and welcome to the second quarter earnings release call. Members of Buckles Management on the call today are Dennis Nelson, President and CEO, Tom Heacock, Senior Vice President of Finance, Treasurer and CFO, Kelly Malsik, Vice President of Women's Merchandising, Bob Carlberg, Senior Vice President of Men's Merchandising, and Brady Fritz, General Counsel and Corporate Secretary. As they review the operating results for the second quarter, which ended August 1, 2020, they would like to reiterate their policy of not giving future sales or earnings guidance and having 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 materials 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 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 express written consent. Any unauthorized Reproductions or recordings of the calls should not be relied upon, as the information may be inaccurate. I would now like to turn the call over to your host, Tom Heacock. Please go ahead.

Good morning, and thanks for joining us this morning. Our August 21, 2020 press release reported that net income for the 13-week second quarter ended August 1, 2020 with $34.7 million, or 71 cents per share on a diluted basis, which compares to net income of $16.4 million or $0.34 per share on a diluted basis for the prior year 13-week second quarter, which ended August 3, 2019. Year-to-date net income for the 26-week period ended August 1, 2020, was $22.9 million or $0.47 per share on a diluted basis compared to net income of $31.5 million or $0.65 per share on a diluted basis for the prior year 26-week period ended August 3, 2019. Net sales for the 13-week second quarter increased 6% to $216 million compared to net sales of $203.8 million for the prior year 13-week second quarter. Online sales for the quarter increased 99%. to $46 million, compared to net sales of $23.1 million for the prior year 13-week fiscal period. Year-to-date net sales decreased 18.2% to $331.4 million for the 26-week fiscal period ended August 1, 2020, compared to net sales of $405.1 million for the prior year 26-week fiscal period ended August 3, 2019. Online sales for the year-to-date period increased 64.3% to $78.1 million, compared to net sales of $47.5 million for the prior year 26-week fiscal period. For the quarter, UPTs increased approximately 3.5%, the average unit retail increased approximately 3%, and the average transaction value increased approximately 7%. Year-to-date, UPTs increased approximately 3%, The average unit retail increased approximately 1%, and the average transaction value increased approximately 3.5%. Gross margin for the quarter was 43.2%, up from 38.6% in the prior year's second quarter. The year-over-year increase was the result of 190 basis point improvement in merchandise margins and 270 basis points of leveraged occupancy buying and distribution costs, given the strong top-line performance for the period that stores were open and strong online sales throughout the quarter. For the year-to-date period, gross margin was 36.3%, down from 38.4% for the same period last year. The year-over-year decrease was the result of deleveraged occupancy buying and distribution costs, partially offset by a 90 basis point improvement in merchandise margins. SG&A expenses for the quarter were 22.1% of net sales compared to 29% for the same period a year ago. On a dollar basis, SG&A declined $11.2 million from $59.1 million in the second quarter of fiscal 2019 to $47.9 million for the second quarter of fiscal 2020. This decline was the result of a $12 million reduction in compensation and benefit-related expenses along with reductions in certain other operating expenses, including travel expenses and store supplies. These reductions were partially offset by increased shipping costs resulting from our strong online growth. SG&A for the year-to-date period was 27.4% of net sales compared to 28.9% for the same period a year ago. On a dollar basis, SG&A for the year-to-date period declined $26.1 million from $117 million in fiscal 2019 to $90.9 million for fiscal 2020. Again, the decline was the result of a $26 million reduction in compensation and benefit-related expenses, along with reductions in certain other operating expenses, and was partially offset by increased freight costs resulting from our strong e-com sales. Our operating margin for the quarter was 21.1% compared to 9.6% for the second quarter of fiscal 2019. For the year-to-date period, our operating margin was 8.9% compared to 9.5% for the same period last year. Other income for the quarter was $0.4 million compared to $2.1 million for the second quarter of 2019. Another income for the year-to-date period was $1 million compared to $3.3 million in the prior year. Income tax expense as a percentage of pre-tax net income for both the current and prior year fiscal quarter was 24.5%, bringing second quarter net income to $34.7 million for fiscal 2020 compared to $16.4 million for fiscal 2019. Income tax expense as a percentage of net income for both the current and prior year year-to-date periods was also 24.5%, bringing year-to-date net income to $22.9 million for 2020, compared to $31.5 million for fiscal 2019. Our press release also included a balance sheet as of August 1, 2020, which included the following. Inventory of $116.5 million, which was down approximately 10% from inventory of $129.1 million as of August 3, 2019. and total cash and investments of $294.9 million, which compares to $249.4 million at the end of fiscal 2019, and $245.6 million as of August 3, 2019. We ended the quarter with $106.1 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $1.3 million, and depreciation expense was $5.5 million. For the year-to-date period, capital expenditures were $3.5 million, and depreciation expense was $11 million. Year-to-date capital spending is broken down as follows. $2.6 million for store remodels and technology upgrades, and $0.9 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened two new Buckle U stores and one new full-line store, and we also closed three locations. which brings our year-to-date count to three new stores, one full remodel, and five store closures. For the remainder of the year, we plan on completing three additional full store remodels. Based on current store plans, we still expect our capital expenditures to be in the range of $7 to $10 million, which includes both planned store projects and IT investments. Buckle ended the quarter with 446 retail stores in 42 states, compared with 449 stores in 42 states, at the end of the second quarter of fiscal 2019. Now I'll turn the call over to Kelly Mulzik, Vice President of Women's Merchandising.

Thanks, Tom. I would like to start by highlighting the performance of our women's merchandise categories for the quarter. Women's merchandise sales to the fiscal quarter were up approximately 6% against the prior year fiscal quarter. Average denim price points increased from $72.55 in the second quarter of fiscal 2019 to $74.60 in the second quarter of fiscal 2020. For the quarter, our women's business was approximately 46.5% of net sales compared to 46% last year, and average women's price points increased about 6% from $36.50 to $38.65. For the quarter, the women's business saw nice responses to several key categories. Our selection in denim was well-received as we continued to evolve the category by building, creating, and offering our guests the biggest selection in fits, finishes, bottom openings, rises, inseams, and waist sizes. Our focus remains on creating denim for every body. Our private label and exclusive product continues to grow as a larger part of our overall denim business. In addition to denim, we also had a nice response to our selection of shorts that we expanded throughout the quarter. As the effects of COVID evolved, we navigated through our on-order and adjusted our flow and overall inventory by category, as well as made shifts in the types of products that we delivered throughout the quarter. We saw a favorable response to these changes as comfort fabrics, simplistic styling, eased silhouettes, graphic tees, and flip-on footwear were drivers of sales. I continue to be extremely proud of the hard work and dedication our women's buying team puts into building our business. With all the uncertainties through and around the pandemic, the team did an amazing job managing our inventory, which shows that several of our key categories ended the quarter with average price points up and our markdown position down, contributing to healthy margins. With our inventory in a comfortable position, we retain the flexibility to act and react to what's ahead. Our focus remains on on-trend, livable, and functional denim-friendly products. And with that, I'll turn it over to Bob Karlberg, Senior Vice President of Men's Merchandising, to discuss the performance of our men's merchandise categories.