Buckle, Inc. (The)

Ladies and gentlemen, thank you for standing by and welcome to the Buckles Third Quarter Earnings Release Conference Call. We will begin today's call with a safe harbor statement. 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 Mulchick, Vice President of Women's Merchandising, Bob Kahlberg, Senior Vice President of Men's Merchandising, and Brady Fritz, General Counsel and Corporate Secretary. As they review the operating results for the third quarter, which ended October 31, 2020, 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 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 upon as the information may be inaccurate As a reminder, this conference is being recorded. I would like to now turn the conference over to our host, Mr. Tom Heacock. Please go ahead, sir.

Good morning, and thank you for joining us today. Our November 20, 2020 press release reported that net income for the 13-week third quarter ended October 31, 2020 was $41.6 million, or $0.85 per share on a diluted basis, compared with net income of $26 million or $0.53 per share on a diluted basis for the prior year 13-week third quarter into November 2, 2019. Year-to-date net income for the 39-week period ended October 31, 2020 with $64.5 million or $1.32 per share on a diluted basis compared to net income of $57.5 million or $1.18 per share on a diluted basis for the prior year 39-week period ended November 2, 2019. Net sales for the 13-week third quarter increased 12% to $251 million compared to net sales of $224.1 million for the prior year 13-week third quarter. Comparable store sales for the quarter increased 12.4% in comparison to the same 13-week period in the prior year, and online sales increased 72.5% to $46.4 million. Year-to-date net sales decreased 7.4% to $582.4 million for the 39-week fiscal period ended October 31, 2020, compared to net sales of $629.3 million for the prior year 39-week fiscal period ended November 2, 2019. Comparable store sales for the year-to-date period were down 7.1%, in comparison to the same 39-week period in the prior year, and our online sales increased 67.3% to $124.4 million. For the quarter, UPTs increased approximately 1%, the average unit retail increased approximately 3%, and the average transaction value increased about 4%. Year-to-date, UPTs increased approximately 2%, the average unit retail increased approximately 2%, and the average transaction value increased approximately 4%. Gross margin for the quarter was 46.6%, up 490 basis points from 41.7% in the prior year third quarter. The year-over-year increase was the result of 160 basis point improvement in merchandise margins and 330 basis points of leverage occupancy buying and distribution costs given the strong top line performance for the quarter. For the year-to-date period, gross margin was 40.7%, up 110 basis points from 39.6% for the same period last year. The year-over-year increase was the result of 130 basis point improvement in merchandise margins, partially offset by deleveraged occupancy buying and distribution costs. Selling general administrative expenses for the quarter were 25% of net sales compared to 26.9% for the same period a year ago. The year-over-year reduction is the result of a 220 basis point improvement in store labor-related expenses and a 50 basis point reduction in travel costs, along with leverage across several other SG&A expense categories. These savings were partially offset by a 75 basis point increase in shipping costs due to our continued strong e-com performance and an 85 basis point increase in expense related to incentive compensation accruals. SG&A expenses for the year-to-date period were 26.4% of net sales compared to 28.2% for the same period a year ago. The year-over-year reduction is the result of a 275 basis point improvement in stored labor-related expenses and a 45 basis point reduction in travel costs. These savings were partially offset by a 105 basis point increase in shipping costs due to continued strong e-com performance. and a 35 basis point increase in expense related to incentive compensation accruals. Our operating margin for the quarter was 21.6% compared to 14.8% for the third quarter of fiscal 2019. For the year-to-date period, our operating margin was 14.3% compared to 11.4% for the same period last year. Other income for the quarter was $1 million. compared to $1.1 million for the third quarter of fiscal 2019, and other income for the year-to-date period was $2 million compared to $4.4 million last 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 third quarter net income to $41.6 million for fiscal 2020 versus $26 million for fiscal 2019. Income tax expense as a percentage of pre-tax income for both the current and prior year year-to-date periods was also 24.5%, bringing year-to-date net income to $64.5 million for fiscal 2020 compared to $57.5 million last year. Our press release also included a balance sheet as of October 31, 2020, which included the following. Inventory of $118.7 million, which was down approximately 14.5%, from inventory of $138.9 million as of November 2, 2019, in total cash and investments of $356.1 million, which compares to $249.4 million at the end of fiscal 2019, and $261.5 million as of November 2, 2019. We ended the quarter with $102.3 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $1.2 million, and depreciation expense was $4.7 million. For the year-to-date period, capital expenditures were $4.7 million and depreciation expense was $15.7 million. Year-to-date capital spending is broken down as follows. $3.6 million for new store construction, store remodels and technology upgrades, and $1.1 million for capital spending at the corporate headquarters and distribution center. During the quarter, we completed two full store remodels which brings our year-to-date counts to three new stores, three full remodels, and five store closures. We also still have one additional full store remodel scheduled for completion in Q4. Based on current store plans, we expect our capital expenditures for the year to be in the range of $6 million to $8 million, which includes both planned store projects and IT investments. Buckle ended the quarter with 446 retail stores in 42 states, which compares to 449 stores in 42 states at the end of the third quarter last year. And now I'll turn it over to Kelly Molzik, Vice President of Women's Merchandising.

Thanks, Tom. I would like to start by highlighting the performance of our Women's Merchandise category. Women's Merchandise sales for the fiscal quarter were up approximately 12% against the prior year fiscal quarter. For both the current and prior year fiscal quarter, our women's business represented approximately 48.5% of net sales. Average denim price points increased from $73.35 in the third quarter of fiscal 2019 to $75.15 in the third quarter of fiscal 2020. And overall women's price points increased about 5.5%. from $41.70 to $44.10. We are pleased to report another nice quarter for the women's business with key categories being our denim, sweaters, knit tops, and footwear. For denim, we continue to evolve our assortment, building upon key exclusive fits and broadening our offering in rises and bottom openings. The expansion of the flared bottom opening within our mix has been a nice addition and well-received by our guests and teammates. In denim, the footprint of our private label brands continues to build. As back to school was delayed for a large part of the country, the later traffic along with the delays in guest readiness for fall apparel aligned well with our release of key fall categories. Soft fabrics, ease of wear fashion knits, graphic tees, and statement sweaters drove top purchases to pair well with our denim. Our casual footwear assortment continued to drive our shoe business as we expanded our exclusive selection and added several new silhouettes into our mix. For accessories, fragrance, fashion hats, and branded handbags helped drive dollars in the department. In addition, our youth business has gained momentum as we evolve our mini-me assortment, offering smaller versions of adult key items. For youth, denim and knit tops continue to drive the majority of our business. We continue to manage our inventory closely, allowing us to react in season to bestsellers, offer a consistent flow of newness to our guests, and respond to opportunities in the market. As we move into holiday, the team continues to do an amazing job reacting to changes in the market and working alongside our vendors to build and deliver unique and exciting products fit for our guests. And with that, I'll turn it over to Bob Kralberg, Senior Vice President of Men's Merchandising, to discuss the performance of our men's merchandise categories.