Buckle, Inc. (The)

Good morning. Thank you for standing by and welcome to Buckle's second quarter earnings release webcast. As a reminder, all participants are currently in a listen-only mode and a Q&A session will be conducted following the company's prepared remarks and instructions given at that time. Members of Buckle's management on the call today are Dennis Nelson, President and CEO, Tom Heacock, Senior Vice President of Finance, Treasurer and CFO, Adam Ackerson, Vice President of Finance and Corporate Controller, and brady fritz senior vice president general counsel and corporate secretary as they review operating results for the second quarter which ended july 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 All forward looking statements made by the company involve material risks and uncertainties and are subject to change based on the factors which may be beyond the company's controls. 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 of future changes make it clear that any projected results expressed or implied therein will not be realised. Additionally, the company does not authorise 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 cause should not be relied upon as the information may be inaccurate. As a reminder, today's webcast is being recorded. I'd now like to turn the conference over to your host, Tom Heacock.

Good morning and thanks for joining us this morning. Our August 18, 2023 press release reported that net income for the 13-week second quarter ended July 29, 2023 was $45.6 million, or $0.92 per share on a diluted basis, which compares to net income of $50.1 million, or $1.01 per share on a diluted basis for the prior year 13-week second quarter, which ended July 30, 2022. Year-to-date net income for the 26-week period into July 29, 2023 was $88.6 million, or $1.78 per share on a diluted basis, which compares to net income of $105.4 million, or $2.13 per share on a diluted basis for the prior year 26-week period into July 30, 2022. Net sales for the 13-week second quarter decreased 3.2% to 292.4 million compared to net sales of 302 million for the prior year 13-week second quarter. Comparable sales for the quarter decreased 3.3% in comparison to the same 13-week period in the prior year, and our online sales decreased 5.6% to 43.6 million. Year-to-date net sales decreased 5.9% to $575.3 million for the 26-week fiscal period into July 29, 2023, compared to net sales of $611 million for the prior year 26-week fiscal period into July 30, 2022. Comparable store sales for the year-to-date period were down 6.3% in comparison to the same 26-week period in the prior year, and our online sales were down 5.6% to $94.9 million. For the quarter, UPTs decreased approximately 2%, the average unit retail increased approximately 2%, and the average transaction value increased about 0.5%. Year-to-date, UPTs increased slightly. The average unit retail increased approximately 0.5%, and the average transaction value increased approximately 1%. Gross margin for the quarter was 47.3%, down 90 basis points from 48.2% in the second quarter of 2022. The current quarter decline was the result of 60 basis points of deleveraged buying distribution and occupancy expense, along with a 30 basis point decline in merchandise margins. Year-to-date gross margin was 47.2%, down 150 basis points from 48.7% in the prior year. The year-to-date decline was due to 100 basis points of deleveraged buying distribution and occupancy expense, along with a 50 basis point reduction in merchandise margins. Selling general administrative expenses for the quarter were 27.9% of net sales compared to 26.4% for the second quarter last year. Year-to-date SG&A was 28% of net sales compared to 26% for the same period last year. The second quarter increase was due to a 60 basis point increase in stored labor-related expenses, a 25 basis point increase in G&A salaries, a 25 basis point increase in equity compensation expense, and a 25 basis point increase in marketing spend, along with increases across several other SG&A expense categories, which had a combined 50 basis point impact. These increases were also partially offset by a 35 basis point decrease in incentive compensation accruals. Our operating margin for the quarter was 19.4% compared to 21.8% for the second quarter of fiscal 2022. And for the year-to-date period, our operating margin was 19.2% compared to 22.7% for the same period 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 second quarter net income to $45.6 million for fiscal 2023 compared to $50.1 million for fiscal 2022. Income tax expense as a percentage of pre-tax net income for both the current and prior year year-to-date periods was also 24.5%, bringing year-to-date net income to $88.6 million for fiscal 2023 compared to $105.4 million for fiscal 2022. Our press release also included a balance sheet as of July 29, 2023, which included the following. inventory of $136.1 million, which was up 5.9% from $128.5 million as of July 30, 2022, and also $322.9 million in total cash and investments. We ended the quarter with $119.3 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $8.6 million, and depreciation expense was $5 million. For the year-to-date period, capital expenditures were $17.9 million and depreciation expense was $9.9 million. Year-to-date capital spending is broken down as follows. $17.2 million for new store construction, store remodels, and technology upgrades, and $0.7 million for capital spending at the corporate headquarters and distribution center. During the quarter, we completed six full remodels, four of which were relocations into new outdoor shopping centers. And we also opened two new stores earlier this month in Nampa, Idaho, and Poplar Bluff, Missouri, which brings our year-to-date counts to four new stores, 10 full remodels, and three store closures. For the remainder of this year, we plan on opening five additional new stores and completing eight more full remodeling projects. Buckwell ended the quarter with 440 retail stores in 42 states compared to 441 stores in 42 states at the end of the second quarter last year. And now we'll turn it over to Adam Akerson, Vice President of Finance.

Thanks, Tom. Women's merchandise sales were down about 6% against the prior year and represented approximately 43.5% of sales compared to 4.5% in the prior year. Average denim price points increased from $77.80 in the second quarter of fiscal 22 to $79.10 in the second quarter of fiscal 23, while overall average women's price points increased about 2.5% from $41.85 to $42.85. Going up against the strongest Q2 on record, we were pleased with the strong sell-throughs in our spring assortment and ended the quarter with comfortable inventory levels across all categories. The women's denim business saw particular strength in our private label brands while being off in our branded styles, which was largely driven by planned inventory decreases. Our women's top business was highlighted by the performance of graphics, sheer fabrics, and product with shine. And while we came into the quarter with plans to chase product in our tops categories, we were unable to source enough newness to drive growth. The women's footwear business saw a nice response to our selection of casual styles, but the open toe and sandals business was impacted by the delayed spring temperatures. On the men's side, merchandise sales for the quarter were down about 1% against the prior year, representing approximately 56.5% of total sales compared to 55.5% in the prior year. average denim price points increased from $87.60 in the second quarter of fiscal 22 to $89.50 in the second quarter of fiscal 23. For the quarter, overall average men's price points increased approximately 4% from $47.30 to $49.25. Growth in the men's denim category continued to lead the way with a nice mix of growth in both private and branded styles. For tops, we are excited about the performance in a wide variety of looks and styles of our short sleeve button-ups. Footwear remains challenging with both difficult comparisons and a difficult competitive landscape, but we continue to identify other accessories that have resulted in nice add-on business. We feel good about our overall inventory positioning as we entered the back to school and fall selling season. On a combined basis, accessory sales for the quarter were up approximately 3.5% against the prior year, while footwear sales were down about 13.5%. These two categories accounted for approximately 11.5% and 7.5%, respectively, of second quarter net sales, which compares to 11% and 8.5% for each in the second quarter of fiscal 22. For the quarter, average accessory price points were up approximately 7.5%, and average footwear price points were up about 9.5%. We are encouraged by the performance in our youth business, seeing particular strengths as we entered the back-to-school selling season, ending the quarter with sales up 5% year-over-year. For the quarter, Denim accounted for approximately 33% of sales and Topps accounted for approximately 30%, which compares to 32% and 30.5% for each in the second quarter of fiscal 22. We continue driving growth in our private brands with private label representing 41% of sales versus 40% in the second quarter of fiscal 22. And with that, we welcome your questions. Thank you.

Thank you. As a reminder for participants, if you'd like to ask a question, please raise your hand in the Zoom app. Prior to asking your question, please state your name and your firm affiliation. First person with their hand raised is Maurizio Serna. Maurizio, you should be allowed to talk now.

Hi. Yes. Can you hear me now?

Yes. Yes, we can. Perfect.

Yeah. Good morning. Mauricio Serna from UBS. Thanks for taking my questions and congrats on the results. I guess just wanted to ask if you could elaborate a little bit more on what were the drivers behind the merchandise margin contraction 30 basis points? Is this related to cost pressure, inflation? How do you see that evolving on the back half of the year? And then secondly, you mentioned something on the women's side. being affected, given that you were unable to source enough newness? How much, if you could maybe give us an idea of how much newness usually represents of your business, or how relevant is that to the overall business growth? Thank you.

Okay. Thank you for your question. I think the margin decrease was largely a part of the opportunity we had last year with the footwear where we had substantial volume and a better margin. And that probably had the biggest effect on the margin part of our business. You know, we're still very strong in most of those categories. On the ladies side, You know, with the weather being difficult in the first several months of not truly getting summer weather, so to speak, we were not getting the early sell-throughs on certain fashion products. So we did not pursue... you know going back to that uh and focused on our back to school season and so that's that's kind of why we didn't go aggressively uh with uh more new styles on the gal side there no further questions in the queues as a reminder if you'd like to ask a question please raise your hand and zoom out we found at the bottom of your application

Perfect. Sorry, we have Maurizio again. Maurizio should be able to unmute now.

Thank you. Thanks so much for the follow-up. I guess just maybe if you could elaborate a little bit more on, you mentioned that you feel very good about your inventory or back to school. I mean, what are your thoughts on like how the season has, how the back to school season has played out? And maybe, you know, if I think about the inventory composition, I think it's still up 6% year over year, you know, in Q2, like how do you feel about that? Like in terms of, know the composition of it and if you come what makes you feel so comfortable about it you know heading into second year thank you

Well, a little historical data probably on our inventory is the, you know, in 19, our inventory was probably in the $135 million ballpark, if I remember right. And then it was down in 2021 quite a bit last year. it increased to more of a normal level. And so our business has grown substantially since that time period. We have most of our receipts are new and good response from our stores and our guests on the new selection. So we feel very comfortable with the selection at this point.

Okay, no further questions in the queue. If you do have a question, please raise your hand. Can you find the raise hand feature in the bottom of your application? Okay, there are no further questions, so I'll now turn the call back over to Buckle for any closing remarks. Thank you.

Thank you, everybody, for your participation today and your interest in Buckle, and everybody enjoy the rest of the day and have a wonderful weekend.