Buckle Inc (BKE) Q2 2022 Earnings Call Transcript

Ladies and gentlemen, thank you for joining us for the second quarter earnings release conference. 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 Security. As they discuss the operating results for the second quarter that ended on July 30, 2022, they want to remind you that they do not provide guidance on future sales or earnings and will share a safe harbor statement. All forward-looking statements made by the company come with significant risks and uncertainties and can change due to factors outside of the company's control. Thus, the company’s future performance and financial outcomes may vary significantly from any forward-looking statements. These factors include, but are not limited to, those outlined in the company's filings with the Securities and Exchange Commission. The company will not publicly update or revise forward-looking statements, even if changes in experience or future conditions indicate that the projected results will not be achieved. Furthermore, the company does not permit the reproduction or distribution of transcriptions or recordings of its quarterly conference calls without written consent. Any unauthorized reproductions or recordings should not be relied upon, as they may contain inaccuracies. As a reminder, today's conference is being recorded. I will now turn the call over to your host, Tom Heacock. Please proceed.

Good morning, and thanks for joining us this morning. Our August 19, 2022 press release reports that net income for the 13-week second quarter ended July 30, 2022, was $50.1 million or $1.01 per share on a diluted basis, which compares to net income of $51.4 million or $1.04 per diluted share for the prior year's 13-week second quarter ended July 31, 2021. Year-to-date net income for the 26-week period ended July 30, 2022, was $105.4 million or $2.13 per share on a diluted basis compared to net income of $108.7 million or $2.20 per share on a diluted basis for the prior year 26-week period ended July 31, 2021. Net sales for the 13-week second quarter increased 2.3% to $302 million compared to net sales of $295.1 million for the prior year's 13-week second quarter. Comparable store sales for the quarter increased 1.6% in comparison to the same 13-week period in the prior year, and online sales increased 6.5% to $46.2 million. Year-to-date net sales increased 2.8% to $611 million for the 26-week fiscal period ended July 30, 2022, compared to net sales of $594.2 million for the prior year 26-week fiscal period ended July 31, 2021. Comparable store sales for the year-to-date period were up 2.6% in comparison to the same 26-week period in the prior year, and our online sales increased 3.5% to $100.6 million. For the quarter, units per transaction increased approximately 0.5%, the average unit retail increased approximately 3.5%, and the average transaction value increased about 4%. Year-to-date, units per transaction decreased approximately 0.5%, the average unit retail increased approximately 2.5%, and the average transaction value increased approximately 2%. Gross margin for the quarter was 48.2%, up slightly from 48.1% in the second quarter of 2021. Year-to-date gross margin was 48.7% consistent with the same period last year. Merchandise margins for the quarter were flat and they're down 10 basis points for the year-to-date period. Selling, general and administrative expenses for the quarter were 26.4% of sales compared to 25.1% for the second quarter of 2021. Year-to-date SG&A was 26% of net sales compared to 24.5% for the same period last year. The second quarter increase was due to a 135 basis point increase in store and labor-related expenses, in addition to increases across several other SG&A expense categories, which had a 55 basis point impact and were partially offset by a 60 basis point decrease in incentive compensation accruals. Our operating margin for the quarter was 21.8% compared to 23% for the second quarter of 2021, and for the year-to-date period, our operating margin was 22.7% compared to 24.2% for the same period last year. Income tax as a percentage of pretax net income for both the current and prior year fiscal quarter was 24.5%, bringing second-quarter net income to $50.1 million for fiscal 2022 compared to $51.4 million for fiscal 2021. Income tax expense as a percentage of pretax income for both the current and prior year year-to-date periods was also 24.5%, bringing year-to-date net income to $105.4 million for 2022 compared to $108.7 million for 2021. Our press release also included a balance sheet as of July 30, 2022, which included the following: inventory of $128.5 million and total cash and investments of $304.8 million. Second quarter inventory comparisons for the last several years included $95.3 million at the end of Q2 2021, $116.5 million in Q2 2020 and $129.1 million for Q2 2019. We ended the quarter with $106.4 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $7.8 million and depreciation expense was $4.7 million. For the year-to-date period, capital expenditures were $14.9 million and depreciation expense was $9.2 million. Year-to-date capital spending is broken down as follows: $14.7 million for new store construction, store remodels, and technology upgrades and $0.2 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened 2 new stores and completed 7 full remodels, 5 of which were relocations into new outdoor shopping centers. This brings our year-to-date totals to 2 new stores, 13 full remodels, and 1 store closure. For the remainder of the year, we anticipate completing 11 additional full remodeling projects and opening 2 additional new stores. Based on current store plans, we still expect our capital expenditures 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 441 retail stores in 42 states compared to 442 stores in 42 states at the end of the second quarter of fiscal 2021.

Thanks, Tom. Women's merchandise sales for the fiscal quarter were up approximately 1% against the prior year's fiscal quarter. For the quarter, our women's business was approximately 44.5% of sales compared to 45% in the prior year. Average denim price points increased from $74.55 in the second quarter of fiscal 2021 to $77.80 in the second quarter of fiscal 2022, while overall average women's price points increased about 4.5% from $40 to $41.85. On the men's side, merchandise sales for the fiscal quarter were up 2% against the prior year fiscal quarter, representing approximately 55.5% of total sales compared to 55% in the prior year. Average denim price points increased from $85.10 in the second quarter of fiscal 2021 to $87.60 in the second quarter of fiscal 2022. For the quarter, overall average men's price points increased approximately 3% from $45.85 to $47.30. On a combined basis, accessory sales for the fiscal quarter were up approximately 8.5% against the prior year's fiscal quarter, and footwear sales were up about 5%. These two categories accounted for approximately 11% and 8.5%, respectively, of the second quarter net sales, which compares to 10% and 8% for each in the second quarter of fiscal 2021. For the quarter, average price points for both our accessory and shoe categories were up approximately 5.5%. For the quarter, denim accounted for approximately 32% of sales and tops accounted for approximately 30.5%, which compares to 33.5% and 31%, respectively, for each in the second quarter of fiscal 2021. We continue to be encouraged by the guest response to our youth business. For the quarter, youth was our fastest-growing category with approximately 37% year-over-year growth and representing about 3% of total sales for the quarter. Overall, we were very pleased with the strong performance in both our men's and women's business for the quarter on top of a record performance a year ago. We continue to build back our inventory levels and ended the quarter with a more balanced presentation across our many lifestyles and price claims. Our buying teams continue to do a great job building our private label business with private label representing 40% of total sales for the quarter compared with 37% in the second quarter of 2020. Markdown inventory continues to be clean. We are excited about our selection moving into the fall and holiday seasons. And with that, we welcome your questions. Thank you.

And there are no questions. One moment. We do have a question from Kyle Kavanaugh with Palisade Capital.

I was wondering if you could comment on the year-over-year increase in inventories, explain a bit more, and also share your thoughts on the current environment. Do you expect the promotional landscape to become more aggressive, given recent news from retailers like Target and Walmart?

Kyle, this is Dennis. Thank you. Our dollar inventory is up 35%, but is basically at the same level as 2019. And our units of inventory are about half of that of the dollars, more like 18% up. And with our sales being in the high 40% up over 2019, we feel that we are very comfortable, and we have increased inventories in categories that we were running extremely low last year as well as we increased some of our youth inventories as we continue to learn and develop that business going forward.

Our next question comes from Peter Brotchie with Brotchie Capital Partners.

Congrats guys on continuing to make progress against the monster comps from last year. My question is, whether or not you see any opportunity to get some operating leverage in the back half of the year as maybe your price points catch up to your labor and SG&A cost increases?

Peter, thank you. We won't project that we're going to get additional there. I mean, our operating margin is extremely high, and we've been able to continue that, and we feel good about it, but we're not going to speculate that we can improve on it.

I think this is Tom, Peter. The challenge is really that store labor is where we are seeing an increase, and we experienced that increase in the second quarter. This trend is likely to continue in the second half of the year. A year ago, we were operating with historically low levels of payroll, particularly at the store level. Although we're up 135 basis points year-over-year, we are still down over 260 basis points compared to 2019. It's a tough comparison for SG&A for the remainder of the year.

Well, congrats on another great quarter and doing a great job, guys.

We have a question from John Deysher with Pinnacle.

Solid quarter, congratulations. I was just curious on the youth initiative. What's driving that? And who exactly are you targeting in terms of age range and that kind of thing?

We've improved our denim selection to show youth, and that's been received well, and we've expanded some of our girls tops, which has been a plus as well. And we're just having more guests find out that we are carrying youth and being well received there. And part of our expansion, we're moving stores and remodels in some cases where we're taking more space to give us room to present to youth. So that combination of things has been beneficial, and we hope to grow on that as well as we go forward.

And what age range are you targeting there?

The target age range is likely between 7 to 14 years old, but we receive requests for smaller sizes. The ideal range seems to be for children aged 8 to 12.

8 to 12, okay. Is the youth merchandise available in all stores and online?

It's available online. It's in probably 75% of our stores at different levels of inventory, and we still have 4 stores that are youth stores only. That we've seen nice results for back-to-school.

Okay. So 4 dedicated youth stores only. What about sourcing? Can you source the youth merchandise from the same vendors you used for the core business?

Probably the majority we can, although with the testing and such that does limit us to certain vendors that can handle that correctly.

Okay. And you anticipate having it in all stores by when?

Well, we'll review the back-to-school season and probably not be any change on that until we review for the next back-to-school season is when we look at adding potentially more stores.

And there are no further questions.

There's no more questions. We'll wrap up the call for today. So thank you, everyone, for participating and enjoy the rest of the day.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing Service. You may now disconnect.