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Executives

Karen Rhoads - VP of Finance and CFO

Dennis Nelson - President and CEO

Analysts

Adrienne Tennant - Friedman Billings Ramsey

Margaret Whitfield - Sterne, Agee & Leach

Elizabeth Montgomery - Longbow Research

Anna Andreeva - JPMorgan

Tom Filandro - Susquehanna Financial Group

Liz Pierce - Roth Capital Partners LLC

Laura Champine - Cowen and Company

Dana Telsey - Telsey Advisory Group

Michael Smith - Gartner Research

Ronald Bookbinder - Global Hunter Securities LLC

Linda Tsai - MKM Partners LLC

Buckle, Inc (BKE) Q2 2009 Earnings Call August 20, 2009 10:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter Earnings Release. At this time all participants are in a listen-only-mode. Later there will be an opportunity for questions and an answer session. Instructions will be given at that time. (Operator Instructions). Members of Buckle's management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Vice President of Finance and CFO; Kyle Hanson, Corporate Secretary and General Counsel; and Tom Heacock, Corporate Controller.

As they review the operating results for the second quarter, which ended August 1, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement. 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 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 expressed 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 conference over to our host, Ms. Karen Rhoads. Please go ahead.

Karen Rhoads

Thank you, and good morning everyone. Our August 20, 2009 press release reported that net income for the second quarter ended August 1, 2009 was $25 million or $0.54 per share on a diluted basis compared to $22.3 million or $0.48 per share on a diluted basis for the prior year's second quarter that ended August 2, 2008. Our year-to-date net income for the 26-week period ended August 1, 2009 was $51.9 million, or $1.11 per share on a diluted basis and that compares to $41 million or $0.88 per share on a diluted basis for the 26-week period ended August 2, 2008.

Please note that the prior year's earnings per share have been adjusted to reflect the impact of our 3-for-2 stock split paid in the form of a stock dividend on October 30, 2008. Additionally, as highlighted in this morning's press release, prior year general and administrative expenses for the second quarter and year-to-date period were reported net of a $3 million gain from the involuntary conversion of one of our company's corporate aircraft which was destroyed in a tornado a year ago. We converted that to a monetary asset upon the receipt of insurance proceeds.

This gain had a $0.04 per share after-tax impact on the reported basic and diluted earnings per share for both the quarter and the year-to-date period. Net sales for the 13-week second quarter increased 13.6% to $192.9 million compared to net sales of $169.8 million for the prior year second quarter. Comparable store sales for the quarter increased 8.6%, compared to the same period in the prior year. Our online sales which are not included in comparable store sales increased 39%, to $10.1 million for the second quarter.

Net sales for the 26-week year-to-date period ended August 1, 2009, increased 18.9% to $392.6 million compared to net sales of $330.1 million for the prior period, 26 weeks ended August 2, 2008. Comparable store sales for the year-to-date period increased 13.1%, compared to the same period of the prior year. Our online sales for the year-to-date period increased 56.4%, to $21.8 million.

Gross margin for the quarter improved approximately 130 basis points to 42.7%. This improvement was driven by an increase in merchandise margins, which had a 90-basis point impact and by the leveraging of buying, distribution and occupancy costs which had a 40-basis point impact. The improvement in merchandise margins for the quarter was primarily a reflection of reduced markdowns a as result of strong sell-throughs on new product, which was partially offset by an increase in redemptions through our Primo Card loyalty program.

For the year-to-date period, gross margin improved approximately 190-basis points to 43%. This improvement was driven by an increase in merchandise margins which had a 90-basis point impact and by the leveraging of buying, distribution and occupancy costs which had a 100-basis point impact. The improvement in merchandise margins for the year-to-date period was primarily a reflection of reduced markdown, as a result of strong sell-throughs on new product and again partially offset by an increase in the redemption of our Primo Card loyalty program.

Selling expense for the quarter was 19.4% of net sales, which was a reduction of approximately 30-basis points from the second quarter of fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales in the expense related to our incentive bonus accruals and by the leveraging of certain other selling expenses, which were partially offset by an increase in internet-related fulfillment and marketing expenses.

For the year-to-date period, selling expense was 19.1% of net sales, which was a reduction of approximately 60-basis points from the same period in fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales, in-store payroll expense and expense related to the incentive bonus accruals and by the leveraging of certain other selling expenses, which were partially offset by an increase in internet fulfillment and marketing expenses.

General and administrative expenses for the quarter were 3.5% of net sales which compares to 2.1% for the second quarter of fiscal 2008. Excluding the prior year gain related to the involuntary conversion of one of the company's corporate aircraft, general and administrative expenses for the second quarter of fiscal 2008 were 3.8% of net sales. The 30-basis point reduction was driven primarily by reduction as a percentage of net sales in equity compensation expense and expense related to the incentive bonus accrual as well as the leveraging of certain other general and administrative expenses.

For the year-to-date period, general and administrative expenses were 3.6% of net sales which compares to 3.1% for the same period in fiscal 2008. Excluding the prior year gain related again to the involuntary conversion of the company's aircraft, general and administrative expenses for fiscal 2008 were 4.0% of net sales. The 40-basis point reduction was primarily driven by a reduction as a percentage of net sales in equity compensation expense and by the leveraging of certain other general and administrative expenses.

Our operating margin for the quarter was 19.8% compared to 19.6% for the second quarter of fiscal 2008. For the year-to-date period, our operating margin was 20.3% compared to 18.4% in fiscal 2008 and excluding the $3 million gain on the corporate aircraft, our operating margin for the fiscal 2008 quarter and year-to-date period were at 17.9% and 17.5% respectively.

Other income for the quarter was $1.5 million, which compares to $2 million for the second quarter of fiscal 2008 and other income for the year-to-date period was 2.5 million compared to 4.4 million last year. Income tax expense as a percentage of pretax net income was 37% for both the second quarter of fiscal 2009 and fiscal 2008 bringing second quarter net income to $25.0 million for fiscal 2009 versus $22.3 million for fiscal 2008, an increase of 12.2%.

Year-to-date income tax expense was also 37% of pretax net income for both fiscal 2009 and fiscal 2008, bringing year-to-date net income to $51.9 million for fiscal 2009, versus $41.0 million for fiscal 2008, an increase of 26.5%. Our press release also included a balance sheet as of August 1, 2009 which included the following. Inventory of $106.5 million, which was up approximately 3%, from inventory of $103.4 million, at the end of the second quarter of fiscal 2008. And total cash and investment of $228.5 million, which compares to $237.8 million at the end of fiscal 2008 and $278.8 million at the same time a year ago.

We also ended the quarter with $132.1 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $11.2 million, and depreciation was $6 million. Please note beginning with the month of August, we'll no longer be providing our inventory and markdown information on a monthly basis and we'll only provide that information on a quarterly basis going forward. Given that the information we previously reported, was only as of the end of the fiscal month and could vary based on minor changes in timing and flow of merchandise. We believe, it's more meaningful and appropriate to only provide such information quarterly along with our operating results.

We still expect our fiscal 2009, capital expenditures to be in the range of $44 million to $48 million, which includes budgeted capital investments, primarily related to store projects, as well as the expansion of our online fulfillment infrastructure within our current warehouse and distribution facility in Kearney, Nebraska and the replacement of our current point of sale software and hardware.

Our newly expanded online fulfillment center went live in June and the $5.5 million expansion approximately doubled from the size of our previous infrastructure. We’ve also made the determination that a new distribution center is necessary to support the anticipated growth of our business over the next several years. We purchased land in Kearney and are currently working with architects, contractors and various state and local officials, and would anticipate beginning work on a new building sometime this fall.

As we are so early in the process, no capital expenditures related to this project have been included in our estimated $44 million to $48 million for the year. In any capital spending related to this project that occurred in fiscal 2009 would be in addition to these estimates. For the quarter, UPTs increased approximately 3%, the average transaction value increased approximately 7%, and the average unit retail increased approximately 5%. For the year-to-date period, UPTs increased about 2.5%, the average transaction value increased 7.5%, and the average unit retail increased approximately 6%. The Buckle ended the quarter with 401 retail stores in 41 states. And that compares to 381 stores in 39 states at the end of the second quarter of fiscal 2008.

And with that, I'll turn the call over to Dennis Nelson, our President and CEO. Dennis is visiting stores this week and so he is out traveling and calling in from the road. Dennis?

Dennis Nelson

Thank you, Karen. Good morning. I would like to start by highlighting the performance from our various merchandise categories that led to our 13.6% net sales increase for the quarter. Men's merchandise sales for the quarter decreased approximately 2%. Positive categories on the Men's side were denim, woven shirts and active apparel.

Average denim price points increased from $79.35 in the second quarter of fiscal 2008 to $87.60 in the second quarter of fiscal 2009. For the quarter, our men's business was approximately 40% of net sales compared to approximately 46.5% last year. And the average, men's price points increased approximately 8% from $42.20 in the second quarter of fiscal 2008 to $45.60 in the second quarter of fiscal 2009.

Women's merchandise sales for the quarter increased approximately 27.5%. Highlights were denim, knit tops, active apparel, accessories and footwear. Average denim price points increased from $80.55 in the second quarter of fiscal 2008 to $89.30 in the second quarter of fiscal 2009. For the quarter, our women's business was approximately 60% of net sales compared to approximately 53.5% last year and the average women's price points increased approximately 5.5% from $35.75 in the second quarter of fiscal 2008, to $37.75 in the second quarter of fiscal 2009.

For the quarter, combined accessory sales were up approximately 20% and combined footwear sales were up approximately 14.5%. These two categories accounted for approximately 8.5% and 5% respectively of the second quarter net sales, which compares to approximately 8% and 5% for each in second quarter of fiscal 2008.

Average price points were down approximately 1.5% and average footwear price points were up approximately 7.5%. For the quarter, denim accounted for approximately 35.5% of sales, and tops accounted for approximately 39%, which compares to approximately 35% and 41% for each in the second quarter of last year.

Our private label business was down just slightly as a percentage of net sales for the quarter due to the strength and variety of selection in our branded merchandise, but continues to represent approximately 25% of sales for the quarter.

During the quarter, we opened nine new stores including our first store in the state of New Jersey and completed seven substantial remodels. As of the end of the quarter 208 of our stores were in our newest format.

For the full fiscal year, we now anticipate opening 20 new stores, which includes five new stores remaining for the rest of the year. We also still anticipate completing 21 substantial remodels in total during the fiscal year, which includes three stores, that have already moved back into the remodeled space in fiscal August and five stores remaining for the rest of the year. And with that we welcome your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our fist question comes from the line of [Adrienne Tennant]. Please go ahead. Adrienne Tennant, your line is open.

Adrienne Tennant - Friedman Billings Ramsey

Karen, can you talk a little bit about the SG&A dollar growth? It looks like you exhibited very, very good control on the G&A side and then on a dollar basis, it was lower than the first quarter sales. Without giving us numbers or anything, can you just help us think about how we should look at that for the back half of the year. Should we look at that similar to 2Q?

Karen Rhoads

Similar in what respect?

Adrienne Tennant - Friedman Billings Ramsey

In terms of dollar growth year-on-year. So, excluding this $3 million gain last year, it looks like the G&A was up about 2.6% on a dollar basis. I'm just wondering if that's the type of the dollar growth that we should expect in Q1, it was up 10%. So, it looks like you’re exhibiting some pretty tight G&A control, and I'm wondering if that's kind of a go-forward pattern that we should think about.

Karen Rhoads

I guess I really couldn't speak on that and the back half is a little bit different than the first half as far as the sale volume and so anything that comes in connection with that we have to take into consideration.

Adrienne Tennant - Friedman Billings Ramsey

Can you remind us last year kind of the build in Ed Hardy and Affliction and when it sort of peaked last year?

Dennis Nelson

I'm not sure, Adrienne. If I remember specifically, I think we were still selling Ed Hardy T-shirts in select stores through at least the early fall and probably at a lesser point Holiday. But to be specific, I couldn’t tell you.

Adrienne Tennant - Friedman Billings Ramsey

My final question is really, the denim newness. It looks like there's a lot more pocket treatment this year especially on the women's side. Do you think you can continue to drive the price points up by adding the embellishments that we are starting to see? Is that kind of something that’s more sustainable go forward for Holiday.

Dennis Nelson

Well, I think our selection that we have now will be pretty consistent through fall and holiday where we still have price points from the $60 range for the most part, all the way up through about $150 with a few exceptions over that. Based on selling the back-to-school and such will respond accordingly, but I would expect to see about the same type of price points and type of inventory through the holiday.

Operator

Next we'll go to the line of Margaret Whitfield. Please go ahead.

Margaret Whitfield - Sterne, Agee & Leach

Dennis, I wondered if you could amplify some of the issues that have restrained the men's side of the business, specifically the knit tops and I am wondering about how this new relationship with you have seen might spark Afflictions business.

Dennis Nelson

Well, I think our men's team overall has done a very nice job of having regular priced business through a difficult first six months because of strong comparisons a year ago and what I see from reports in the market. It sounds like the men's business is very difficult for a lot of places.

Last year, we capitalized on some opportunities in the knit business that was excellent. We still feel that our knit business is, we are very happy with it and there is a lot of newness and good opportunities out there. As far as Affliction with their new alignment with UFC, we would expect likely to still have a couple of promotions a year and that we would not really see this affecting what they are doing. I mean they have a great brand and have played off their network with the fighters, but they're very good product people and do a nice job of newness and so we've been very happy with their selection.

Margaret Whitfield - Sterne, Agee & Leach

Any new brands coming down the pike that look like they could approach the size of an Affliction or an Ed Hardy such as [Remitti] or Rebel Spirit.

Dennis Nelson

Well, we are always shopping new brands and testing and developing product with our core vendors. So, that's the most speculation we'll do right now.

Margaret Whitfield - Sterne, Agee & Leach

And any thoughts on store openings or added states next year?

Dennis Nelson

Next year we'll be within the 41 states and most likely we'll continue to be probably in the 20 range of new stores and maybe low to mid-20s on the remodels, depending on the opportunities.

Margaret Whitfield - Sterne, Agee & Leach

Are you seeing any differences geographically, in terms of recent sales trends, Midwest versus newer markets?

Dennis Nelson

Not specifically any consistent thing through there. Nothing to comment on that.

Margaret Whitfield - Sterne, Agee & Leach

For Karen, I wondered why the decline in equity compensation, expense and incentive comp in Q2? Could you quantify it?

Karen Rhoads

No, we have not quantified it and on the incentive compensation, we've continued to I guess try and talk about the incentive compensation is based on growth in three categories, growth in comparable store sales, gross margin, and pre-bonus pretax net income. So any time, the growth in any of those categories slows down, the incentive bonus accrual is going to slow down too.

Margaret Whitfield - Sterne, Agee & Leach

Just one of them slow. If only one of them slows, that the incentive goes down.

Karen Rhoads

Each of those growth categories contributes dollars into the incentive bonus.

Operator

Next, we will go to the line of Elizabeth Montgomery. Please go ahead.

Elizabeth Montgomery - Longbow Research

Karen, I guess just following up on the last question, is there any way you can tell us what incentive comp was as a percentage of total sales for last year all in?

Karen Rhoads

Not off the top, I couldn't.

Elizabeth Montgomery - Longbow Research

Can you guys talk, maybe if there's a difference in productivity between the new store format and the older store format and what that might be and also whether there is a difference in productivity between Midwestern markets and some of the newer states. Not in terms of recent comp trends but in terms of sales per square foot metrics.

Dennis Nelson

I think a lot of the new stores are usually in larger regional markets and some of the previous existing stores and so we are seeing nice sales productivity out of those. Each market can be a little different. It's very difficult to breakdown the different markets because we have some very strong older markets as well. Karen, do you have anything else to add on that?

Karen Rhoads

No, I would agree with you on that, Dennis. There isn't like a cookie cutter store that here is how we open and here's how it ramp up, because we are in a lot of different markets. Again as Dennis mentioned, some of our older markets do very well also.

Elizabeth Montgomery - Longbow Research

A final comment is on back-to-school; have you seen any change in the comp trends in kind of the earlier back-to-school markets relative to some of the later ones? Is there any discrepancy between those two or is it still trending in August pretty much the same?

Dennis Nelson

I'm sorry, but we can't comment until we release sales in two weeks.

Operator

Our next question comes from the line of Anna Andreeva. Please go ahead.

Anna Andreeva - JPMorgan

I was wondering if you could address deceleration in your women's business in July. I know you’re talking about the lack of Affliction promotion that had some impact on the month, but I would have expected that to be more on the men's side. So could you maybe comment on that, is that reflective of back to school happening later for your business and without giving guidance should we see some pick up in women's over the next couple of months. I guess what are you seeing in women's trend wise and what are some of the opportunities for the back half?

Dennis Nelson

Well, I think our ladies business has been terrific, showing very nice growth when I don't know that there's a lot of people out there showing any growth. I think some of the strength of the gains in the first quarter compared to the second would be due to maybe not stronger numbers to go against in '08 during first quarter and that strengthened as we went on in the second quarter last year.

Anna Andreeva - JPMorgan

Okay and what are you seeing trend wise?

Dennis Nelson

I mean through July, there we saw a nice response to our product and our gals business through the first half of the year we thought performed very well.

Anna Andreeva - JPMorgan

Any I guess missed opportunities from last year that you think you could capitalize on this year, any new brands to call out?

Dennis Nelson

Outside our denim brands, most of our top and variety and our outer wear and fashion categories are for the most part private development. So I just think the team continues to do a nice job creating newness.

Anna Andreeva - JPMorgan

Okay. So private label in women's is growing?

Dennis Nelson

I'd say quite a bit of that is private label and some of it is what we kind of have referred to in the past is kind of blended private where we are working with vendors developing special make ups and exclusive product for us in our stores.

Anna Andreeva - JPMorgan

Are you guys doing anything differently, this August promotion-wise and what kind of impact should we see from a later Labor Day this month?

Dennis Nelson

Promotion-wise, we have something with Hurley with the Jason Mraz, for concerts but it only effects about five cities and 30 stores, there's a little promotion, but it's not really product driven or price driven whatsoever. The Affliction promotion ended at the first part of the month. So, we really don't have anything special going at the moment over the next four to six weeks.

Anna Andreeva - JPMorgan

Karen, inventories look like in very good shape. How are you guys managing inventory levels in the back half?

Karen Rhoads

I think in the back half we would see inventory levels in total probably up to that mid to high single digits. Dennis, would you agree, where we see inventory running?

Dennis Nelson

Some of that depends on the flow of some of the deliveries and such, but we would expect it to be in that mid to high single digit for the most part.

Anna Andreeva - JPMorgan

Karen also to you, it looks like looking at your gross margins, the occupancy gains, decelerated a little bit from previous quarters, what kind of comp do you need to get occupancy leverage?

Karen Rhoads

2 to 3% comp to get that leverage.

Anna Andreeva - JPMorgan

Dennis, given the new DC, are you reassessing the store potential? Could this be from 400 stores today to 500 stores to 600 stores overtime?

Dennis Nelson

We would estimate the best we can that there would be the potential for the mid-500 range, but that is a bit of a speculation, but we are in need of office space, storage space other room just to run our business efficiently and continue to grow, so that's the motive for the new DC.

Operator

Our next question comes from the line of Tom Filandro. Please go ahead.

Tom Filandro - Susquehanna Financial Group

Dennis; the denims business, pricing up as much as 10% in men’s and 11% in women's, can you give us a better understanding of what’s going on there? Is it a reduction in markdowns, are you seeing better brands, better pricing on the branded side, private label side. What can you tell us about those big jumps?

Dennis Nelson

I think, part of it is due to less markdowns of some denim carryover, but also we’ve added some big star as a vintage line that prices from the 120s to 150 that has had some impact, we've continued to sell MEK at that price point. We are testing other items and categories, anywhere from the 110s to 130s. We had this very few stores that we have some 7 denim in, which is over the 150. We have men's product, some Affliction jeans that are over 150. So, it's not necessarily an all store basis at those price points, but if the product is right, our guest is looking for newness and willing to pay if they see the fit and value for that garment.

Tom Filandro - Susquehanna Financial Group

Maybe can you give us a sense Karen, on how should we think about the [IMUs] go forward?

Karen Rhoads

I don't see any real big change in that going forward.

Tom Filandro - Susquehanna Financial Group

I think this is asked indirectly, but in terms of the tax-free shifts, do you have any sense on what impact that had in the second quarter?

Karen Rhoads

Bottom line, I guess we didn't really go back and relook at that again Tom, but we did had about a 3% impact on comps for the four-week period of July, but we didn't go back and quantify what that meant to the bottom line.

Tom Filandro - Susquehanna Financial Group

So a 3% impact on July and clearly, you've got some shifts going into August but you also have a later labor day. Have you guys done any analysis on how that plays out August, September in terms of the impact on the business?

Karen Rhoads

We've looked at that a little bit, but that is harder to judge. We don't track all of the different school starts and when colleges starts there and so we know that it will have an impact and we'll kind of look at our August, September timeframe together internally as we look at it.

Operator

Our next question comes from the line of Liz Pierce. Please go ahead.

Liz Pierce - Roth Capital Partners LLC

Karen, a little bit going back on the IMU, you said, the merchandise margins were up 90 basis points, how much of that was IMU?

Karen Rhoads

I don't think that we ever give that information out.

Liz Pierce - Roth Capital Partners LLC

Just in terms of on the sourcing, are you guys getting some of the benefit that we are hearing from other retailers just given your buying power?

Dennis Nelson

I think in certain categories, there's opportunities, but still the fashion kind of drives it and depending what is going on in the market can make a difference where that initial mark up is.

Liz Pierce - Roth Capital Partners LLC

And then just a housekeeping question, Karen, when you gave the CapEx and depreciation, was that year-to-date or was that quarter?

Karen Rhoads

That was for the quarter.

Liz Pierce - Roth Capital Partners LLC

What do you expect depreciation to be for the year?

Karen Rhoads

Probably 24 million to 25 million.

Liz Pierce - Roth Capital Partners LLC

Circling back on the question about new stores, you weren't speaking about remodels, you were talking about actual new stores?

Dennis Nelson

Are you referring for next year or this year?

Liz Pierce - Roth Capital Partners LLC

The productivity? I think the question was about productivity on new stores versus probably existing stores and I was curious about how the remodeled stores if you look back at the ones that you remodeled in the past two years you are doing?

Dennis Nelson

It varies because some of the stores were very established when we did remodeling, but need to be freshened up to stay competitive. But in most cases we see some very nice sales gains and growth in new stores with the remodels than the freshness of the fixtures and such.

Liz Pierce - Roth Capital Partners LLC

On the selling cost, I realize it will obviously grow as the sales volume as we move into heavier volume. Are you doing anything on your payroll for payroll just in given the volatility that we've seen is that where the benefit might have been coming from?

Karen Rhoads

In store payroll, that's an area that our sales management team really tries to stay on top of. You got a particularly tough area in times when the comp slows a little bit too to really stay on top of that scheduling and manage that. We had also another minimum wage increase going into effect towards the end of July. We increased some of the starting basis for our teammates in the store who are paid at a base plus commission.

So, it's an area that continues to be addressed and looked at very closely on an ongoing basis. At this time, I don't think that we would be able to commit to how much improvement if any there would be in the back half of the year, because again part of that is impacted by the topline and again just managing the hours budgeted per store.

Liz Pierce - Roth Capital Partners LLC

What is your average lead time on product? Just thinking about your comment on inventory up in the mid-to-high single digit, if business started to flex better than that, how quickly can you get product in to the stores.

Dennis Nelson

In a lot of our junior categories and men's knits we’re probably looking at average of six to eight weeks. Sometimes it's sooner than that, but that's probably a pretty good guideline and a lot of our denim now is 90 to 120 days out. Naturally, some of the outerwear, the import items would be four or five months depending on the category.

Operator

We will go to the line of Laura Champine. Please go ahead.

Laura Champine - Cowen and Company

You commented a little about brands and fashion on denim, what you are seeing, but can you comment more generally about fashion for back-to-school and how you’re positioned. Also on the denim brands, does it seem like you might continue to see private label tick down as a percentage given the new things you are doing there?

Dennis Nelson

Private label, I think will hold pretty close I mean with the price points on some of the brands that could tick down slightly, but I wouldn’t see a big change there. The teams have done a nice job of assorting the stores with the outer wear category looks good from both the men's and women's. The vest has been working well in fashion type items and maybe a little bit more balanced mixed wovens, sweaters, with the knits instead of as heavy and knits as we have been.

Laura Champine - Cowen and Company

And then again on the SG&A leverage question, can you give us how much of SG&A expense is variable versus fixed?

Karen Rhoads

A large portion of the selling expense is variable and the G&A definitely is more fixed outside of the incentive compensation component and I guess that’s kind of why we break those instead of lumping that all together and we do break out selling separate from G&A, because the selling is definitely more variable.

Operator

Next we will go to the line of Dana Telsey. Please go ahead.

Dana Telsey - Telsey Advisory Group

Can you talk a little bit as you expand in to other areas like New Jersey, what are you seeing different in terms of performance or customer base in those stores, than what you see elsewhere? As you think of your gross margin going forward and the increase in the price of denim, is there more gross margin opportunity with higher priced denim or how do you see that evolving?

Dennis Nelson

Well, I think at this point what we've found in some of the newer markets as the guests are very receptive to our selection and our service and so we've been pleased with that. On the higher price point denim, the initial markup is probably consistent with most of our other brands and naturally less than our private label.

Operator

Our next question comes from the line of Kevin [Fall]. Please go ahead.

Unidentified Analyst

Can you talk about the inventory on a per square foot basis, kind of how you think about that in the second half of the year?

Dennis Nelson

We break down our categories and the selection that we want to do for each category and kind of build it from there. I would imagine our strategy is going to be consistent with over the past year where we try to react and keep a flow of product and be careful of inventory, but continue to bring in new product and go after the sales, the best we can without getting over exposed on the inventory.

Unidentified Analyst

And the bulk of your incentive comp accrual, it typically occurs in the fourth quarter, is that the kind of a true up-quarter?

Karen Rhoads

Correct.

Operator

Our next question comes from the line of [Edward Ruma]. Please go ahead.

Unidentified Analyst

Just a quick comment or question on the G&A. Was there any incentive comp accrual reversal during the quarter, given the trends have distorted slightly or was that really responsible for the downtick sequentially when I look at the G&A number?

Karen Rhoads

When we've looked at that bonus accrual, we are always looking at it on a year-to-date basis and looking at projecting where we are going to be for the quarter. It's a year-to-date accrual, and so there might have been a little bit of true-up in the second quarter from estimates in the first quarter, but it wouldn't have been a really big difference.

Unidentified Analyst

I believe you are going to begin to cycle when you notice an uptick in Primo Card redemptions, has that accelerated and should that be continued gross margin headwind as we head to the back half of the year. Thanks.

Dennis Nelson

I'm not sure if I can guesstimate that. Part of that Primo Card bill is our Buckle Charge Card business continues to grow and we have certain reward incentives on that, that are a little more limited than our Primo Card, but still is an opportunity for loyal guests to receive some gift cards from their business during certain periods. So, that has a little effect? Do you have any comments on that, Karen?

Karen Rhoads

No. I would agree with you, Dennis.

Operator

Next we will go to the line of Margaret Whitfield. Please go ahead.

Margaret Whitfield - Sterne, Agee & Leach

I was wondering in September given the later Labor Day, what you could tell us Dennis, if you've got any promotions planned for the month and if there were any last year at that time?

Dennis Nelson

It seems like last year, we might have had a tie in with one of the band artist, but no big promotion. I think, we are working on some promotion with our Buckle Charge Card bank that will be doing a little something. That could have some benefit and we are continually working with different artist as possible tie-ins, but just kind of like the past where we sell the CDs, guest concerts, it’s kind of ties in with the image of the brand and such, but it’s not price promotional or any big discount type things.

Operator

Next we will go to the line of Mike Smith. Please go ahead.

Michael Smith - Gartner Research

The new distribution center you are going to break ground on this fall, about how big of an investment is that and when do you expect to move in I guess?

Karen Rhoads

We haven't put in the exact numbers on the capital expenditure for the building we are looking at over a 200,000 square foot building. Depending on when we can break ground this fall, the earliest we would move in would probably be July of 2010 and again ground breaking and winter weather in Nebraska could play a big difference on when we can actually move into the facility.

Michael Smith - Gartner Research

I thought it was always (inaudible) in Kearney.

Karen Rhoads

Yes.

Michael Smith - Gartner Research

Has there been any change that you'd like to speak to about your management turnover or are you still in the best place in town to work?

Dennis Nelson

I think we are really excited about the people we have to work with in the executive level as well as our store managers and a lot of teammates out in the stores and I'll say that Jim Shada retiring in March I think that has been the only change we've had for a period of time, correct Karen?

Karen Rhoads

Correct.

Michael Smith - Gartner Research

On the remodels, I suppose the answer to this question, it varies a lot, but is there a average cost for a remodel in terms of your CapEx?

Karen Rhoads

Our remodel really costs about the same as a brand new store because we go in and pretty much [in demo] what's there and build up a new store. In some of our smaller markets, Mike, we might not do a full remodel, but maybe redo some of the wall treatments and floor treatments and then provide the new fixtures, and that would be a smaller expenditure, but other wise remodels would be the same as a new store construction.

Operator

Next, we will go to the line of Ronald Bookbinder, please go ahead.

Ronald Bookbinder - Global Hunter Securities LLC

When you look at your merchandise mix for the fall, and given the strength of denim and price points involved, are you looking at the overall price points being up this fall, no matter what happens with Affliction or Ed Hardy shirts?

Dennis Nelson

You are asking if the denim prices will be up this fall?

Ronald Bookbinder - Global Hunter Securities LLC

No, I'm asking if the overall price points will be up this fall given the strength of denim and their price points.

Dennis Nelson

At this point, I would guess they would probably be up low to mid single digit.

Ronald Bookbinder - Global Hunter Securities LLC

Your inventory, being only up 3% and you are looking for the inventory in the back half of the year to be up, I think you said mid to high single digits at the end of the year. Were you just above your internal plan as to why inventory is so tight right now? Or was there some sort of time issues for the transition?

Dennis Nelson

I think some of that depends on the delivery of some of our major denim buys and such that they could be off anywhere from one to three weeks or such, which could affect the flow.

Karen Rhoads

We did have on the gals denim, there were some early deliveries in July last year that came in early August of this year.

Dennis Nelson

True.

Ronald Bookbinder - Global Hunter Securities LLC

Did you have any activity on your share repurchase plan and when does that end and given the investment in the new DC, will that affect any plans going forward on share repurchase?

Karen Rhoads

We haven't purchased any shares. We didn’t repurchase any shares during the quarter. We still have 799,000 shares available for repurchase. There isn't an expiration date on those. Again, it’s for the Board approval. It's based upon executive committee decision of when they felt that that purchase price is accretive and makes sense for shareholder.

Also given the second part of your question, we do evaluate the overall cash needs. So looking at store expansion, looking at distribution center expansion, as we talked about in the narrative also, we completed in the second quarter our expansion of our online fulfillment center. So we do look at all our operating needs and decide as far any buyback or other cash expenditures, how we would use that as the dollar is best.

Operator

We’ll go the line of Linda Tsai. Please go ahead.

Linda Tsai - MKM Partners LLC

When you look at the denim in the various price points from 60s to 70s, 80s to 110, and higher than 120, how do these various categories perform versus last quarter and then on versus a year-over-year basis. Dennis, I think you mentioned that the 80s to 110s weren't so great last quarter, but then the 120s were doing okay. Where do you see the most area of growth or slowdown?

Dennis Nelson

I don't know that we've really analyzed it to that affect, Linda. We’ve been pretty happy with all our brands and our selection right now. So, I don't see one that is necessarily underperforming or one that’s overachieving from the different one. We've got a wide variety of guests and they buy different brands and different price points at the same time. So, I don't really see anything to break down from that.

Linda Tsai - MKM Partners LLC

Was the performance of the different categories sort of similar to last quarter?

Dennis Nelson

Trying to think from the second quarter to the first quarter, I would say for the most part they would be very similar. Yes.

Linda Tsai - MKM Partners LLC

Are you looking to grow a particular area or you're comfortable with how things are right now?

Dennis Nelson

We are just very product-driven. We don't decide on a price point or any specifics when we go into shopping the market or developing product, we are very product-driven on how we proceed.

Linda Tsai - MKM Partners LLC

Then are there any new trends you could discuss for kind of the second half of the year in denim? That you are seeing or --?

Dennis Nelson

No, I rather not get in to that.

Operator

At that time, there are no further questions coming from the phone lines.

Dennis Nelson

Okay, thank you.

Operator

That does conclude our conference for today, thank you for your participation and for using the AT&T executive teleconferencing service. You may now disconnect.

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