The Buckle's (BKE) CEO Dennis Nelson on Q1 2014 Results - Earnings Call Transcript

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 |  About: The Buckle, Inc. (BKE)
by: SA Transcripts

The Buckle, Inc. (NYSE:BKE)

Q1 2014 Results Earnings Conference Call

May 22, 2014, 10:00 AM ET

Executives

Karen B. Rhoads - CFO and SVP, Finance

Dennis H. Nelson - President and CEO

Thomas B. Heacock - Treasurer and Corporate Controller

Kyle L. Hanson - VP, General Counsel, Corporate Secretary

Patricia K. Whisler - SVP, Women’s Merchandising

Robert M. Carlberg - SVP, Men’s Merchandising

Analysts

Lee Giordano - CRT Capital

Gabriella Carbone - Janney Capital Markets

Kate Fitzsimmons - JPMorgan

John Kernan - Cowen and Company

Dana Telsey - Telsey Advisory Group

Edward Yruma - KeyBanc Capital Markets

Operator

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter Earnings Release. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder this conference is being recorded.

Members of the Buckle's management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and CFO; Pat Whisler, Senior Vice President, Women's Merchandising; Bob Carlberg, Senior Vice President of Men's Merchandising; Kyle Hanson, Vice President, General Counsel and Corporate Secretary; Tom Heacock, Treasurer and Corporate Controller.

As they review the operating release’s results for the first quarter which ended May 3, 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 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 and revise any forward-looking statements, even if experience or future changes make it clear that their 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 call should not be relied upon as the information may be inaccurate.

I would now like to turn the conference over to your host Ms. Karen Rhoads. Please go ahead.

Karen B. Rhoads

Thank you. Good morning everyone. Thank you for joining the call this morning. Our May 22, 2014 press release reported that net income for the 13-week first quarter that ended May 3, 2014 was $37.3 million or $0.78 per share on a diluted basis and that's compared to net income of $37.6 million or $0.78 per share on a diluted basis for the prior year 13-week first quarter that ended May 4, 2013.

Our net sales for the 13-week first quarter increased 0.7% to $271.7 million, compared to net sales of $269.7 million for the prior year 13-week first quarter. Comparable stores sales for the quarter were down 0.9% in comparison to the same 13-week period in the prior year and our online sales, which are not included in comparable store sales increased 2.5% to $21.4 million.

Gross margin for the quarter was 43.1% down approximately 30 basis points from 43.4% for the first quarter last year. The decrease was driven by deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline. Our merchandise margins for the quarter were essentially flat compared to a year ago.

Selling expense for the quarter was 17.6% of net sales compared to 17.5% for the first quarter of fiscal 2013, an increase in store payroll expense was partially offset by a reduction as a percentage of net sales in expense related to the incentive bonus accrual. General administrative expenses for the quarter were 3.7% of net sales compared to 3.9% for the first quarter of fiscal 2013 with the decline primarily attributable to the reduction in equity compensation expense.

Our operating margin for the quarter was 21.8% compared to 22.0% for the first quarter of fiscal 2013. Other income for the quarter was $345,000 compared to $350,000 for the first quarter of fiscal 2013.

Income tax expense as a percentage pretax net income was 37.3% for the first quarter of fiscal 2014, compared to 37.0% for the first quarter of fiscal 2013, bringing first quarter net income to $37.3 million for fiscal 2014 versus $37.6 million for fiscal 2013. Our press release also included a balance sheet as of May 3, 2014 which included the following: Inventory of $119.2 million, which was up approximately 12.5% from inventory of $105.9 million at the end of the first quarter of fiscal 2013 and total cash and investment of $237.8 million which compares to $228.5 million at the end of fiscal 2013 and compares to $180.3 million at the same time a year ago.

As of the end of the quarter inventory on a comparable store basis was up approximately 11% compared to the same time a year ago and total mark down inventory was up on an absolute dollar basis but was down as a percentage of total inventory. We also ended the quarter with $160.7 million in fixed assets, net of accumulated depreciation.

Our capital expenditures for the quarter were $10.1 million and depreciation expense was $7.7 million. Capital spending for the quarter is broken down as follows; $8.8 million for new store construction, store remodels and store technology upgrades and $1.3 million for capital spending at the corporate headquarters and distribution center.

We still expect our fiscal 2014 capital expenditures to be in the range of $48 million to $53 million which includes primarily new store and store remodeling projects, IT investments and the construction of a new office building as part of our home office campus in Kearney, Nebraska.

For the quarter UPTs increased approximately 3%, the average transaction value increased approximately 2% and the average unit retail decreased approximately 1%. Buckle ended the quarter with 450 retail stores in 43 states compared to 443 stores in 43 states at the end of the first quarter of fiscal 2013.

Additionally our total square footage was 2.266 million square feet as of the end of the quarter compared to 2.224 million square feet at the same time a year ago. And at this time I’d like to turn the call over to Tom Heacock, our Corporate Control and Treasurer.

Thomas B. Heacock

Good morning and thanks for joining us this morning. I’d like to start by highlighting the performance form our merchandize categories that led to our 0.7% net sales increase for the quarter. Men’s merchandize sales for the quarter were up approximately 2.5% with strong categories including denim and casual bottom, shorts and accessories.

Average denim price points increased from $90.30 in the first quarter of fiscal 2013 to $92.75 in the first quarter of fiscal 2014. For the quarter our Men’s business was approximately 41% of net sales compared to approximately 40% last year and average Men’s price points increased approximately 1.5% from $53.95 to $54.85.

Women’s merchandize sales for the quarter were down approximately 0.5% with strong categories including casual bottoms, knit tops, sweaters, skirts and dresses and accessories. Average denim price points on the women’s side increased from $98.90 in the first quarter of fiscal 2013 to a $100.15 in the first quarter of fiscal 2014. For the quarter our Women’s business was approximately 59% of sales compared to approximately 60% last year and our average women’s price points decreased approximately 2.5% from $48.60 to $47.40.

For the quarter combined accessories sales were up approximately 3% and combined footwear sales were down approximately 0.5%. These two categories account for approximately 7.5% and 6% respectively of first quarter net sales which compares to approximately 7.5% and 6.5% for each in the first quarter last year.

Average accessory prices points were down approximately 2% and average footwear price points were up approximately 4.5%. For the quarter denim accounted for approximately 43.5% of sales and tops accounted for approximately 28.5% which compares to approximately 44.5% and 28.5% for each in the first quarter last year.

Our private label business was up slightly as a percentage of sales for the quarter and represented approximately 32% of sales. During the quarter we opened one new store, closed one store and completed six substantial remodels. As of the end of the quarter 346 of our 450 stores were in our newest format. For the full year we still anticipate opening 17 new stores in total including two that have already opened in May, one is planned for June, nine for back to school and four for holiday. We also anticipate completing 18 full remodels during the year including two yet to be completed in May, seven for back to school and three for holiday.

And with that we welcome your questions.

Question-and-Answer Session

Operator

First question comes from the line of Lee Giordano at CRT Capital. Please go ahead.

Lee Giordano - CRT Capital

Thanks, good morning everyone.

Dennis H. Nelson

Good morning, Lee.

Lee Giordano - CRT Capital

I was hoping you could talk a little more about the denim category and in particular the premium denim business kind of what your outlook is for that business going forward into the back half of the year and into holiday and also what’s driving -- it looks like average price points are going up, what’s driving that increase? Thanks.

Dennis H. Nelson

As we've said on the last call we had our denim inventories had -- got pretty low the year before so we had added inventory to both the guys and gals business. And the branded jeans like Rock Revival, Big Star Vintage and a few smaller ones, those higher price points have been well received and that has raised the average price of the denim. So we’re seeing good response to our denim selection and looking forward to the back to school season. Does that cover everything Lee?

Lee Giordano - CRT Capital

Yeah that's it, thank you very much.

Operator

Our next question comes from the line of Gabby Carbone with Janney Capital Markets. Please go ahead.

Gabriella Carbone - Janney Capital Markets

Hi, thank you for taking my question. I am calling in for Adrienne Tennant. So many retailers have been talking about closing stores or slowing on new store openings and instead focusing on the DTC business. So any thoughts there as you continue to see the shift from brick and mortar to DTC and the investments being made in that business to drive sales going forward? Thank you.

Dennis H. Nelson

Good morning thanks for the question. We see our online business to be just part of our strategy with our stores. We focus on the great specialty service in our stores as well as with the wide selection. It’s -- we’re always working to drive people to the stores and we do a lot of special orders with our guests in our stores from our online store.

We are working on CRM that we hope to be in place by the first part of next year. And we have several projects that we think will not only help our business online but will help also drive the guests to the store to shop as well. So we’re looking to -- I mean in the markets there is always change in neighborhood and situations where there might be a better shopping area than the other so occasionally have store closings. But for the most part we’re looking at driving our business both with the store and the online business together.

Gabriella Carbone - Janney Capital Markets

Okay great, thank you so much.

Dennis H. Nelson

Thank you.

Operator

Our next question comes from the line of Kate Fitzsimmons with JPMorgan. Please go ahead.

Kate Fitzsimmons - JPMorgan

Yes, hi good morning. My question was how you’re feeling about inventory just in terms of quality, just given the increase year-over-year and then secondly just any thoughts on how you’re planning inventory into the back half, should we still expect to see it up double-digits? Thank you.

Dennis H. Nelson

There is a lot of variables but I would see the end of the second quarter probably be in the high single-digits on inventory. But we’ve had a nice response to our selection and we feel good about our inventory at this point.

Kate Fitzsimmons - JPMorgan

Okay great. Thank you very much.

Dennis H. Nelson

Thank you.

Operator

Our next question comes from the line of John Kernan with Cowen. Please go ahead.

John Kernan - Cowen and Company

Hey good morning guys.

Dennis H. Nelson

Good morning.

John Kernan - Cowen and Company

Just any comments you can give us on e-commerce the growth there has been a little bit below what we’ve been seeing out of other specially retailers. So anything you can tell us in terms of the investments you might be making there to get that line going?

Dennis H. Nelson

Karen or Kyle, do you have anything to add from my previous comments?

Kyle Hanson

I think one of the things -- this is Kyle Hanson and I work closely with both the marketing and development teams on the online store. And one of the things that Dennis mentioned that we feel that we've really been able to maximize our strengths on the special orders from our stores which are primarily fulfilled from our online stores and those sales go to the stores themselves so those are not included in our online sales numbers.

John Kernan - Cowen and Company

Okay, and then I guess you guys have long been great stewards of capital, are your cash balances update year-over-year, the dividend subsequently was down a little bit year-over-year last year. Can you talk about where you think that you have the potential in terms of cash returns to shareholders, how that could look at the back half of the year? Thanks.

Dennis H. Nelson

I guess we've declined make any forward comments on that. We’ll just continue to review quarterly where we add on opportunities and where the cash value is to make those decisions.

John Kernan - Cowen and Company

Okay, thank you.

Dennis H. Nelson

Yes, thank you.

Operator

Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please go ahead.

Dana Telsey - Telsey Advisory Group

Good morning everyone.

Dennis H. Nelson

Good morning Dana.

Dana Telsey - Telsey Advisory Group

Can you please just touch on a little bit on the women’s business, what you are seeing on the fashion part and what changes you expect to happen as you go forward and timing of any improvements? Thank you.

Dennis H. Nelson

Okay. Pat do you want start with this?

Patricia K. Whisler

Sure. Well overall we just continue to offer broad variety in response to the guest request. We’d say there is a key component of the relaxed lifestyle that’s been a strong driver and we have that covered, we think well from some of our private label brands as well as some of our newer business partners. Our denim category, we continue to expand our selection there in fabric and finishes and increased our fit selection. So I just feel confident about the teams approach to the business and responding to the guest.

Dennis H. Nelson

And I’ll add Dana. I think the team has done a very nice job with our variety of tops and selection there. And our dress and skirt business continues to add to business. So we’ve been very happy with that part of it.

Dana Telsey - Telsey Advisory Group

As you see private and the branded mix how should that change for both men’s and women’s?

Dennis H. Nelson

I think right now I would say it would be pretty consistent with the previous year. Bob do you have any comments on that?

Robert M. Carlberg

I’d say that’s pretty accurate. We're going to stay pretty consistent.

Dana Telsey - Telsey Advisory Group

Thank you.

Dennis H. Nelson

Yes.

Operator

Our next question comes from the line of Edward Yruma with KeyBanc. Please go ahead.

Edward Yruma - KeyBanc Capital Markets

Hi good morning, thanks for taking my question. Just a quick question on the balance sheet, inventory little bit better in shape than fourth quarter but payables were up, anything we should think about there? Thanks.

Dennis H. Nelson

Karen or Tom do you want to take that?

Karen B. Rhoads

Our merchandize payables and or actually --

Edward Yruma - KeyBanc Capital Markets

All right, so the inventory was up, payables were down. Sorry about that.

Karen B. Rhoads

Yes. And part of that inventory is carrying over from the end of the year because, I think as we talked about on our year-end call, some of that inventory was brought in a little bit earlier this year to kind of be ahead of the Chinese New Year. So we had that early flow of inventory and so the flow of product during the first quarter was actually down slightly from a year ago on new receipts for the quarter and so then that would result in fewer payables just because of the flow, the timing of the flow of that inventory.

Edward Yruma - KeyBanc Capital Markets

Got it and just a bigger picture question about denim price points, I know you guys have done a good job of adding more private label and having smart track inventory price points. At this stage are you comfortable with the variety of price points you have? And if not where are other places you could add product? Thanks.

Dennis H. Nelson

Well I think we are feeling pretty good about our price point selection. We have quite a variety from in the 50, 60's all the way up to well over $150. And it's the stuff, the team has done a nice job of balancing the inventories for the selection of the guest and as everything in our business it keeps changing. So we are continuing to evolve and test different categories and fabrics to see how far we can push the limit but also give our guest that are more price conscious good quality and value as well.

Edward Yruma - KeyBanc Capital Markets

Great, thanks so much.

Dennis H. Nelson

Yes.

Karen B. Rhoads

Thanks Ed.

Operator

There are no further questions at this time.

Karen B. Rhoads

All right if there are no further questions, we’d again like to thank everyone for participating in the call today and wish everyone a great Memorial weekend.

Operator

Ladies and gentlemen if you’d like the conference will be made available for a replay after 11 AM today until June 5th at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1800-475-6701, entering access code 326712. International participants may dial 1320-365-3844. And again the numbers are 1800-475-6701 with access code 326712, international number 320-365-3844. That does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference Executive Service. You may now disconnect.

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