Buckle, Inc. (The)

Hello, everyone. Thank you for standing by. You are currently holding for today's Buckles first courting earnings release webcast. We will be getting started momentarily. Thank you for your patience. And again, everyone, thank you for standing by. You're currently holding for today's Buckles first quarter earnings release webcast. We are still awaiting and allowing additional attendees. We thank you for your patience and please continue to stand by. And for those of you just now joining, you're currently holding for today's Buckles first quarter earnings release webcast. Thank you so much for joining us today. We'll be getting started momentarily. Well, good morning and thank you for standing by and welcome to Buckles first quarter earnings release webcast. As a reminder, all participants are currently in a listen-only mode, but a question and answer session will be conducted following the company's prepared remarks with instructions given at that time. Members of Buckles management on the call today are Dennis Nelson, President and CEO, Tom Heacock, Senior Vice President of Finance, Treasurer and CFO, and Adam Ackerson, Vice President of Finance and Corporate Controller. As they review operating results for the first quarter, which ended April 29, 2023, 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 is as follows. 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. And as a reminder, today's webcast is being recorded. And now I will turn things over to your host, Tom Heacock. Tom, over to you.

Good morning and thanks for joining us this morning. Our May 26, 2023 press release report that net income for the 13-week first quarter ended April 29, 2023 was $42.9 million, or $0.86 per share on a diluted basis, which compares to net income of $55.3 million, or $1.12 per share on a diluted basis for the prior year 13-week first quarter that ended April 30, 2022. Net sales for the 13-week first quarter decreased 8.5% to 282.8 million compared to net sales of 309.1 million for the prior year 13-week first quarter. Comparable source sales for the quarter decreased 9.2% in comparison to the same 13-week period in the prior year, and our online sales were down 5.6% to 51.3 million. For the quarter, UPTs decreased or increased approximately 2.5%, the average unit retail decreased approximately 0.5%, and the average transaction value increased about 1.5%. Gross margin for the quarter was 47.1%, down 210 basis points from 49.2% for the first quarter of 2022. The current quarter decline is the result of 140 basis points of deleveraged buying distribution and occupancy expense, along with a 70 basis point decline in merchandise margins. Selling general administrative expenses for the quarter were 28.1% of net sales, compared to 25.6% for the first quarter of 2022. The first quarter increase was primarily due to a 200 basis point increase in store labor-related expenses, along with increases across several other SG&A expense categories, which had a combined 150 basis point impact and were offset by a reduction in expense related to accruals for incentive compensation expense, which had 100 basis point impact. Our operating margin for the quarter was 19.0% compared to 23.6% for the first quarter of fiscal 2022. Income tax expense as a percentage of pre-tax net income for both the current and prior year fiscal quarter was 24.5%, bringing first quarter net income to $42.9 million for fiscal 2023, compared to $55.3 million for fiscal 2022. Our press release also included a balance sheet as of April 29, 2023, which included the following. Inventory of $137.7 million, which was up 13.7% from $121.2 million as of April 30, 2022, and $300 million in total cash and investments. We ended the quarter with $116.1 million in fixed assets and out of accumulated depreciation. Our capital expenditures for the quarter were $9.3 million and depreciation expense was $4.9 million. The first quarter capital spending is broken down as follows. $8.8 million for new store construction, store remodels and technology upgrades and $0.5 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened two new stores, completed four full remodels, three of which were relocations into new outdoor shopping centers and closed three stores. For the remainder of the year, we plan on opening seven additional new stores and completing 13 more full remodel projects. Buckle ended the quarter with 440 retail stores in 42 states compared with 439 stores in 42 states at the end of the first quarter of fiscal 2022. And now I'll turn it over to Adam Ackerson, Vice President of Finance. Thanks, Tom.

Women's merchandise sales for the quarter were down about 10.5% against the prior year and represented approximately 47.5% of sales compared to 48.5% in the prior year. Average denim price points increased from $76.60 in the first quarter of fiscal 22 to $79.80 in the first quarter of fiscal 23, while the overall average women's price point increased about 4.5% from $45.45 to $47.40. On the men's side, merchandise sales for the quarter were down about 8% against the prior year, representing approximately 52.5% of total sales compared to 51.5% in the prior year. average denim price points increased from $86 in the first quarter of fiscal 22 to $88.80 in the first quarter of fiscal 23. For the quarter, overall average men's price points increased approximately 3.5% from $50.75 to $52.60. On a combined basis, accessory sales for the quarter were up approximately 9.5% against the prior year, while footwear sales were down about 39%. These two categories accounted for approximately 11% and 8%, respectively, of the first quarter net sales, which compares to 9% and 12% for each in the first quarter of fiscal 22. For the quarter, average accessory price points were up approximately 12%, and average footwear price points were up 6.5%. For the quarter, Denim accounted for approximately 41.5% of total sales and Topps accounted for approximately 27%, which compares to 40% and 27.5% for each in the first quarter of fiscal 22. Our buying teams continued to introduce new brands and provide a diverse assortment of private label product. For the quarter, private label represented 44% of sales versus 42.5% in the first quarter of 2022. During a difficult spring selling season, we were pleased with the performance of both our men's and women's business. Outside of footwear, which accounted for approximately half of the total sales decline for the quarter, we saw good selling across several categories. Denim on the men's side performed well, and we believe our selection of pillows, short sleeve tees, and shorts have us well positioned moving into the summer selling season. On the women's side, Dems sure performed well, and we anticipate that carrying through to the back to school season, pairing well with continued newness in our summer and fashion tops. And with that, we will end your questions. Thank you.

Thank you so much. And as a reminder for participants, if you would like to ask a question, please use the Raise Your Hand tab. It's located in the bottom menu of your Zoom app. And prior to asking your question, we please ask that you state your name and your firm affiliation. And we will hear first from John Bratz. And I believe, John, you are with Kansas City Capital Associates. So John, please go ahead. And John, you should see the option to unmute there in the lower left corner of your screen.

Is that better?

Perfect. Thank you.

I'm sorry. A couple of questions. Obviously, it's a little bit difficult first quarter in terms of sales. At the star level, are you adjusting labor costs to reflect the current environment? So are you seeing a little bit of that? Are you doing a little bit of that?

Good morning, John. Yes, we are doing our best. I mean, with the sales leverage down with the uh such we have had to increase some wages uh you know with what's going on with inflation and stuff for our teams uh but but our teams are continually working the schedules and and adjusting to handle that the best we can although the uh that cost is up over the last two years of great success where where the uh they were kind of unusually low it's still below uh several years ago uh as far as the cost percent so uh you know it is on our radar and continue to work with that

Okay. On the footwear side, obviously there was a lot of weakness in footwear sales. It's coming off some difficult comps, but is there anything specific to footwear that's behind the weakness? There's a few new styles, or do we all have enough shoes? Anything specific to footwear that you see that's behind the weakness?

Yes, in our branded casual footwear, there's increased inventory from the brand in the market that is cut into what we were doing. But also a year ago, we had kind of a pinup demand for that category. And so we had unusually high sales. first part of spring on on on the brand and so we were anniversary uh tough comps and uh know we'll still have some headwinds as we go through the year uh but not at the same degree i think i think the sales were about 12 million uh in the first quarter a year ago on that and the rest of the year uh not counting december i think it drops to eight million so we'll have a little less headwind there uh but it's kind of the part of the fashion cycle that goes on

not to name names, but are we talking about Hey Dude?

That would be the key one, yes.

Okay. All right. Thank you. And lastly, Dennis, I think in the commentary, seven new stores for the remainder of the year, and that's a little bit different than what we've seen in the past where it's been somewhat limited. What's your thinking behind the additional new stores? Is the... T. John McCune, M.D.: : Are there some retail openings that, so to speak, that just that you find just very attractive at this time, maybe because other retailers left, but why why the why the new new store growth.

Well, what we've seen over the last couple years is changes in markets, and now we're considering more power centers and other situations with our success that we've learned from that we feel good about. some of these markets and also we see with the people moving and changes from the last couple years that new opportunities are being created and there's been some good development and we met some new real estate people that have given us very good opportunities to work with And opening up to the potential where we have opened in a couple outlet store or outlet malls. That previous you had to be an outlet store to be part of. And we would, we would just only do our regular store and they've seen our success and welcome us. to their projects and where they have excellent traffic and we feel that uh our product will uh work well in their centers that's given us some additional opportunities as well okay all right thank you you're welcome and we will hear next from mauricio cerna with ubs hi yes good morning uh can you hear me okay yes thank you please continue

Great, great. Thanks for taking our questions. I guess I wanted to ask if you saw any differences in performance by regions, anything that you would call out. And then the merchandise margin, you know, what is driving that contraction seeing that, you know, your merchant, your private label penetration actually increased 150 basis points year over year?

Okay, yes, on the margin. You know, our footwear margins before were. We're very good and we've seen a little drop back there. For the most part, I think we're also. selling some branded denim that has been very good, but the margin's not as good as private label where we kind of had low inventories a year ago on that. And I think a couple of those things are the main point. Some of the fashion tops where there's better margin, where it's a little softer the first quarter has probably had a little effect as well. Okay.

Thanks. And then about the original performance? I'm sorry, which? Sorry, any call-outs on the regional performance? Oh, sorry, yes.

You know, naturally, the southern parts, especially in Texas stuff, there's been good traffic. But I'd say in the majority of the others, there's been enough seasonal weather that's been challenging that's had an effect on most other stores.

Got it. Thank you very much. Thank you.

And again, as a reminder to the audience, please use the raise hand feature if you would like to ask a question today. We'll move on to Carlton Goetz.

Good morning. How are you? Good morning. Good. Carlton Guest with Winter Harbor Capital. I wanted to build on a question earlier concerning store growth just a little bit. One of the positive features of Buckle over the years has been a very measured approach to store growth, although store counts have declined since about 2015 up until last year. Do you expect that this trajectory towards positive location growth to be a longer term trend or is it dependent on results of the new stores that you're opening this year?

Well, in our meetings, what we're seeing is a lot of good opportunities to reposition stores, whether we move out of malls that are lost the traffic and as I mentioned with the opening of power centers and other outlet opportunities for us you know I don't know if each year will be similar amount of stores but we're certainly open to new stores where the opportunity creates itself so we're kind of opportunity players and And the, you know, here again, we're starting to look at 24 and seeing some possibilities there, but we're not ready to announce how many new ones there will be.

Sure. And then with respect to the new stores that are opening, are these primarily in adjacent geographic locations to where the company already has a significant number of stores, or are these further afield?

Most of them are in regions that we do very well in.

And then finally, just expanding on that a little more, Buckles maintained a very high return on equity and capital investment for many years, even when sales took a hit. Has the lack of growth Left some value on the table with respect to that and you're thinking, or how does the company approach that view and the store decline count or the count decline in the count of stores over the last several years until the recent upward trend?

So, as I mentioned, you know, we're. We moved some of our stores out of malls, and in a lot of cases, we've been able to expand square footage, give the location an updated store, and people really enjoyed shopping those stores. So we're looking at opportunities to maximize our results and I guess we feel real good about each situation we're looking at and changing. And with everything we see going on, there's going to be some good opportunities, but we're still looking at covering the downside and let the upside take care of itself, which has served us well over the years.

Sure. And then if I may, one last question on e-commerce sales. Is the company's e-commerce sales experience concentrated in the areas where you have stores, or have you seen e-commerce drive brand extension in areas where you don't have geographic locations?

Our total sales probably are best in the stores where in the states where we are strongest and continue to do well. A lot of times we see guests go online to see the newness and then go to the store to buy. But still where we have strength is very good. But we do, you know, do a reasonable amount outside of our territories too. Thank you. Thank you.

and moving on to alan glenn alan you should see the option to unmute in the lower left corner of your screen and alan you now have permission to speak if you'd like to go ahead and ask your question great thank you sorry about that can you hear me now Yes, we sure can.

Okay, I apologize. Given your store footprint, which tends to be in smaller cities, close but not near, right in urban centers, do you have any favorite economic macro indicators or metrics that you like to look at to give you a feel for forward-looking retail climate?

We don't have any specific ones. We look at a lot of different information. Usually, you know, most of the centers have traffic indicators. We look at sales of others in the centers. We have certain retail stores that we look at depending on the market or such. But in our areas where we are strong, we are pretty open to a lot of situations. We have some outstanding mall stores, know throughout the midwest and the larger cities and feel very comfortable with those uh you know we we are not in the uh the northeast cities or southern florida cities or the la or san francisco area but outside of that you know we are open to review the majority of the markets

Okay, thanks. And my other question is kind of micro-based. Last year, there was a lot of disruption in freight forwarding and companies getting inventory. Have you guys experienced any of that, or has that been pretty smooth for you so far?

I'd say for the most part, it's been pretty smooth at this point.

Thanks.

Thank you.

And as a final reminder to the audience, please use the raise your hand tab located in the bottom menu of your zoom app to ask a question today and we will now take a follow up for Mauricio Cerna.

Great, thanks for the follow-up. I just wanted to ask about inventory. I see that the growth has moderated sequentially from the fourth quarter. I wanted to know if you see any, I guess, pockets of inventory where you feel it's still high, and do you have any views or expectations on when you think the inventory growth will be more aligned with the sales growth? Thanks.

Yes, thank you. Here again for first quarter, we did bring spring product in, more of it for the first quarter than the second quarter, and very comfortable with our inventory levels at this point, and probably the start of the third quarter will definitely be more in line with how sales are going. Perfect. Thank you.

And we have no further questions. So I will turn things back to Buckle for any closing remarks.

No further questions. We'll conclude today's call and thank you all for your participation and hope everyone has a wonderful holiday weekend. So thank you very much.

Thank you. And again, that does conclude today's earnings release. We thank you all for your participation. Enjoy your summer. We'll see you next quarter.