Buckle Inc (BKE) Q1 2022 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. 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 Akerson, Vice President of Finance and Corporate Controller; and Brady Fritz, Senior Vice President, General Counsel and Corporate Secretary. As they review the opening results for the first quarter, which ended April 30, 2022, 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 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. That being said, welcome, everyone, to Buckle's first quarter earnings release. I would now like to turn the conference over to our host, Mr. Tom Heacock. Please go ahead.

Good morning, and thanks for joining us this morning. Our May 26, 2022, press release reported a net income for the 13-week first quarter ended April 30, 2022, was $55.3 million or $1.12 per share on a diluted basis compared to net income of $57.3 million or $1.16 per share on a diluted basis for the prior year 13-week first quarter, which ended May 1, 2021. Net sales for the 13-week first quarter increased 3.3% to $309.1 million from net sales of $299.1 million for the prior year 13-week first quarter. Comparable store sales for the quarter increased 3.7% and online sales were $54.3 million, an increase of 1.1% compared to $53.7 million in the first quarter of 2021. For the quarter, UPTs decreased approximately 2%. The average unit retail increased approximately 1.5% and the average transaction value decreased about 0.5%. Gross margin for the quarter was 49.2% compared to 49.3% in the first quarter of 2021, with the current quarter decreased as a result of a 20 basis point decline in merchandise margins and a 20 basis point increase in store distribution freight costs, partially offset by a 30 basis points of leverage occupancy costs. Selling, general and administrative expenses for the quarter were 25.6% of sales compared to 24% for the first quarter of 2021. The current quarter increase was the result of a 140 basis point increase in store labor-related expenses, a 30 basis point increase in e-commerce freight costs, and a 25 basis point increase in marketing and certain other SG&A expense categories. These increases were partially offset by a 35 basis point decrease in incentive compensation accruals. Our operating margin for the quarter was 23.6% compared to 25.3% for the first quarter of fiscal 2021. Income tax expense as a percentage of pretax net income for both the current and prior year fiscal quarter was 24.5%, bringing first quarter net income to $55.3 million for fiscal 2022 versus $57.3 million for fiscal 2021. Our press release also included a balance sheet as of April 30, 2022, which included the following: inventory of $121.2 million and total cash and investments of $283.1 million. First quarter inventory comparisons for the last several years include $89 million at the end of Q1 2021, $121.7 million in 2020, and $120.8 million in 2019. We ended the quarter with $103.3 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $7.1 million and depreciation expense was $4.5 million. Year-to-date capital spending is broken down as follows: $7 million for new store construction, store remodels and technology upgrades and $0.1 million for capital spending at the corporate headquarters and distribution center. During the quarter, we completed 6 full remodels, all of which were relocations into new outdoor shopping centers and also closed 1 store. For the year, we plan on opening 5 new stores and completing 10 to 15 additional full remodeling projects. Based on current store plans, we still expect our capital expenditures for the year to be in the range of $22 million to $27 million, which includes both planned store projects and IT investments. Buckle ended the quarter with 439 retail stores in 42 states compared to 442 stores in 42 states at the end of the first quarter of 2021.

Thanks, Tom. Throughout the first quarter, our buying teams delivered a steady flow of newness that continued to be well received by our guests. Women's merchandise sales for the fiscal quarter were up approximately 2.5% against the prior year fiscal quarter. For the quarter, our women's business was approximately 48.5% of sales compared to 49% in the prior year. Average denim price points increased from $76.20 in the first quarter of fiscal 2021 to $76.60 in the first quarter of fiscal 2022, while overall average women's price points decreased slightly from $45.50 to $45.45. On the men's side, merchandise sales for the fiscal quarter were up 4% against the prior year fiscal quarter, representing approximately 51.5% of total sales compared to 51% in the prior year. Average denim price points decreased from $86.20 in the first quarter of fiscal 2021 to $86 in the first quarter of fiscal 2022. For the quarter, overall average men's price points increased approximately 1% from $50.20 to $50.75. On a combined basis, accessory sales for the fiscal quarter were up approximately 8% against the prior year fiscal quarter, and footwear sales were up about 12%. These two categories accounted for approximately 9% and 12%, respectively, of first quarter net sales, which compares to 8.5% and 11% for each in the first quarter of fiscal 2021. Average accessory price points were down approximately 2.5%, while average footwear price points were up about 3%. For the quarter, denim accounted for approximately 40% of sales and tops accounted for approximately 27.5%, which compares to 42% and 26% for each in the first quarter of fiscal 2021. During the quarter, our private label business grew to 42.5% of total sales compared with 38% in the first quarter of 2021. As Tom alluded, we finished the quarter with inventory for both our men's and women's departments in a much more comparable pre-2021 levels as we move into summer and back-to-school. We continue to be encouraged by the health of our guest file. We began the year with over 33% more 12-month active guests than the previous year, and we continue to grow that file during the first quarter of 2022. Complementing this growth, we have also been able to maintain a high retention rate of over 50% of our guests. With that, we welcome your questions. Thank you.

Okay. Our first question is coming from Peter Brotchie with Brotchie Capital Management.

Yes, I have a general question about your core demographic. My impression is that they tend to be younger and likely have more discretionary income, potentially making them less impacted by current inflation compared to a typical family of four. On a related note, if I'm correct, your denim prices might be lower now than they were in 2014 or earlier in the 2010s. I'm curious if you can share insights on how you are managing any cost pressures from clothing manufacturers and shipping costs. Additionally, are you still experiencing high shipping costs?

Your assumption on our guests is that maybe in the '90s, early 2000s, it was a younger guest. We still sell very well, and with us adding young people to junior high, high school, and college-age, we have also kind of grown up with a lot of our guests from the early days where we probably have as many or more 25-, 30-year-olds and older shoppers as well. As far as the 2014 earlier days, there was a time where we were selling a large amount of branded denim that would sell anywhere from $120 to $160 plus. It was a big part of our business. And as that trend kind of evolved over the last few years, we've done an excellent job of continuing to sell some of our guest favorite brands but also developed our own private brands, and that has become a very strong part of our business and offering great value. A lot of them are around $70, and we have kind of our premium brands that would be in the $85 range. So we've grown that substantially. Costs are up just slightly on those when there's maybe a 3% to 5% increase in retails on some of that product. But we think we offer a great value, great quality, and our team has done an excellent job of continuing to develop our denim business.

That's great information. Do you anticipate any resistance to the 3% to 5% increase in price points? It doesn't appear that way based on your report.

No, I would say that in the first quarter, we haven't encountered any concerns regarding that. As we increase our denim inventory, we've introduced sizes based on customer requests for smaller, larger, longer, or shorter inseams. Our aim is to cater to a wider range of customers and meet their needs. The team is very excited; the first quarter performed well, just slightly below last year's remarkable results. Our teams are doing an excellent job focusing on being the best specialty store possible, and everyone is contributing positively to that effort.

Yes, that's fantastic. And just on the shipping costs, are you still seeing elevated pressure there?

We are, and that was one of the areas we called out in the narrative that we're seeing pressure there in a couple of different ways. Some of it is inbound. So in the product cost, and that's part of the reason, again, coming off record merchandise margins, where merchandise margins were down 20 basis points. Some of that is input costs, but a lot of that is freight in. That's a part of the inventory. We also called out and saw some pressure on distribution. So packages coming from our distribution center going to stores, that was an increase as well, which is a function of increased rates but then also increased receipts, a lot more packages, a lot more newness and excitement going through the stores. And then the last bucket is online orders, and increases there are kind of the same thing, an increase in packages with our online growth and the way we're shipping and then also increased rates. So we are seeing some pressure there. But to date, it's manageable.

Okay. Congrats on being able to build up record numbers from '21 and Q1 '22 here.

Thank you, Peter.

Our next question comes from Jon Braatz with Kansas City Capital.

Dennis, Tom, could you discuss the occupancy costs? You're still managing those costs, and this has been the case for some time. Is there a point where we can expect to see those costs stabilize and have a lesser impact on the margins than they currently do?

We are very excited about our relocations to outdoor power strips and various locations. We are focusing on smaller mid-markets and have left malls that no longer attract customers for us. We have successfully relocated to destination stores that continue to generate good traffic, which we are thrilled about. We have many projects underway and plan to continue this through next year. While I can't predict how much leverage we will have in the future, we believe we have a strong real estate strategy. Our team is doing an excellent job collaborating with our landlords and developers, and we are enhancing our ability to drive business and serve as a mini anchor in many situations.

Okay. Dennis, how choppy has the deliveries been from overseas? Are you getting things on a timely basis? And secondly, really here in the Midwest, the summer hasn't materialized yet. Are you seeing any impact on sort of summer sales as a result of the mild temperature still?

Well, for the first quarter, we were planning out an extra 4 to 8 weeks, depending on the category, and the first quarter was pretty good to us. There's always exceptions and some delays on a few things. But overall, we had great delivery on product and our vendors are doing a nice job working with us. The first quarter, in certain parts of our company, maybe had a little adverse effect on some of the short selling, but it was very strong a year ago, that first quarter. But we feel real good about our selection of summer product as we move into the summer season.

We're not seeing any additional questions in the queue. Please continue.

If there are no further questions, we can wrap up the call for today. So thank you, everybody, for joining us, and have a wonderful rest of the day.

Thank you. Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using AT&T conferencing service. You may now disconnect.