Buckle Inc Q1 FY2024 Earnings Call

Good morning, and thank you for standing by, and welcome to Buckle's First Quarter Earnings Release Webcast. 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; Brady Fritz, Senior Vice President, General Counsel and Corporate Secretary. As they review operating results, 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 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 call should not be relied upon as the information may be inaccurate. As a reminder, today's webcast is being recorded. And I'd now like to turn the conference over to your host, Tom Heacock.

Good morning, and thanks for joining us this morning. Our May 24, 2024 press release reported that net income for the 13-week first quarter ended May 4, 2024, was $34.8 million or $0.69 per share on a diluted basis compared to net income of $42.9 million or $0.86 per share on a diluted basis for the prior year 13-week first quarter, which ended April 29, 2023. Net sales for the 13-week first quarter decreased 7.2% to $262.5 million compared to net sales of $282.8 million for the prior year 13-week first quarter. Comparable store sales for the 13-week fiscal quarter decreased 9% in comparison to the same 13-week period in the prior year, and our online sales decreased 13.4% to $44.4 million for the 13-week fiscal quarter this year compared to $51.3 million for the prior year 13-week fiscal quarter. Compared to the same 13-week period a year ago, online sales were down 13.2%. For the quarter, UPTs decreased approximately 5.5%, the average unit retail increased approximately 6.5%, and the average transaction value increased about 1%. Gross margin for the quarter was 46%, down 110 basis points from 47.1% for the first quarter of 2023. The current quarter decline was the result of deleverage, buying, distribution, and occupancy expenses partially offset by a 50 basis point improvement in merchandise margins. Selling, general and administrative expenses for the quarter were 29.8% of net sales compared to 28.1% for the first quarter last year. The first quarter increase was due to a 105 basis point increase in store and labor-related expenses, a 35 basis point increase in expenses for accrued PTO, a 30 basis point increase in G&A salaries, a 30 basis point increase in marketing spend, and a 30 basis point increase in other SG&A expense categories. These increases were partially offset by a 40 basis point reduction in incentive compensation accruals and a 20 basis point decrease in e-commerce shipping expenses. Our operating margin for the quarter was 16.2% compared to 19% for the first quarter of fiscal 2023. 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 $34.8 million for fiscal 2024 compared to $42.9 million for fiscal 2023. Our press release also included a balance sheet as of May 4, 2024, which included the following: inventory of $130.7 million, which was down 5.1% from the same time a year ago; and $317.2 million of total cash and investments. We ended the quarter with $132.1 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $10.8 million and depreciation expense was $5.4 million. First quarter capital spending is broken down as follows: $10.5 million for new store construction, store remodels, and technology upgrades and $0.3 million for capital spending at the corporate headquarters and distribution center. During the quarter, we completed 5 full store remodels, 4 of which were relocations into new outdoor shopping centers and closed 4 stores, one of which was a Youth store, which was combined back with the full-line store upon remodel. For the remainder of the year, we anticipate opening 7 new stores and completing 14 additional full remodeling projects. Buckle ended the quarter with 440 retail stores in 42 states, which is consistent with the store count at the end of the first quarter last year. And now I'll turn it over to Adam Akerson.

Thanks, Tom. Women's merchandise sales for the quarter were down about 8.5% against the prior year fiscal quarter and represented approximately 47% of sales compared to 47.5% in the prior year. On a 13-week comparable basis, women's merchandise sales were down approximately 9.5%. Average denim price points increased from $79.80 in the first quarter of fiscal '23 to $80.85 in the first quarter of fiscal '24, while overall average women's price points increased about 1.5% from $47.40 to $48. On the men's side, merchandise sales for the quarter were down about 5.5% against the prior year fiscal quarter, representing approximately 53% of total sales compared to 52.5% in the prior year. On a 13-week comparable basis, men's merchandise sales were down approximately 7.5%. Average denim price points decreased from $88.80 in the first quarter of fiscal 2023 to $88.65 in the first quarter of fiscal 2024. For the quarter, overall average men's price points increased approximately 2% from $52.60 to $53.60. On a combined basis, accessory sales for the 13-week quarter were down approximately 8.5% against the prior year's 13-week comparable period, while footwear sales were down about 34%. These two categories accounted for approximately 11% and 6%, respectively, of first quarter net sales, which compares to 11% and 8% for each in the first quarter of fiscal 2023. For the quarter, average accessory price points were up approximately 2%, and average footwear price points were up about 6.5%. Denim accounted for approximately 43% of sales and tops accounted for approximately 27.5%, which compares to 41.5% and 27% for each in the first quarter of fiscal '23. Compared to the same 13 weeks a year ago, our combined denim categories outperformed the total business and were down about 3.5% with strength in our private brands, including Buckle Black and Salvage. Our shorts categories were challenged during the quarter due to a lack of newness in the market, but we were able to sell through the category and ended the quarter with inventory down 17.5% from elevated levels a year ago. On a combined basis, our tops categories were down about 8%. Despite tougher first quarter top line results, we were pleased that our teams were able to grow merchandise margins in both our private label and branded business and effectively manage inventory levels. As part of our merchandising strategy, our buying team continued to invest in the development of our private brands and have kept introducing new labels to our assortment. For the quarter, private label represented 46% of sales versus 44% in the first quarter of 2023. And with that, we welcome your questions.

We were pleased that our teams were able to grow merchandise margins in both our private label and branded business and effectively manage inventory levels. As part of our merchandising strategy, our buying team continued to invest in the development of our private brands and have kept introducing new labels to our assortment. For the quarter, private label represented 46% of sales versus 44% in the first quarter of 2023. And with that, we welcome your questions.

If there's no questions, we can end the call today. We'll be quick, and we can get everyone started on their holiday weekend. So thank you very much, and enjoy the rest of the day.

It looks like we have a question from Mauricio Serna.

Can you hear me?

Yes.

Sorry about the delay. Yes, I have a couple of questions. Could you elaborate more on what you're observing in the denim category? You mentioned that it stands out, and we’ve heard from other companies about a positive denim cycle. It would be interesting to hear your insights on that. Also, you noted that merchandise margins improved for both private and national brands. I would like to understand what is driving that expansion. We've typically seen a natural increase in total merchandise margins due to private labels, so I'm curious about your perspective on this. Lastly, regarding operating expenses, I noticed that general and administrative expenses have risen year-over-year, and I am wondering what is contributing to that increase despite declining sales.

On the ladies' denim side, we are observing a range of styles generating interest, particularly the new trend styles like cropped straights and wide bottoms. Our private brands are performing well, especially with traditional fits featuring various details, and we are seeing an increased awareness of our Buckle Black and BKE brands, which are also receiving positive feedback. We continue to sell a few flares, and overall, our selection and inventory look strong, thanks to the team's efforts. On the men's side, our BKE brand remains robust, and we are making progress with Buckle Black for men alongside Salvage, while our Rock Revival customers appreciate the new offerings. The introduction of new styles in key men's brands is yielding favorable responses. Generally, the team is handling the selection well, resulting in improved margins rather than just slight increases, and we have a solid sell-through of new products. We are effectively managing inventory while consistently adding new items, which is proving successful for both segments. Now, Tom, would you like to address the operating expenses?

Yes. I believe your last question was mainly about SG&A. The selling expense has decreased, which isn’t fully aligned with sales. The main factors contributing to this are the reduced in-store hours, which led to a decrease in hourly pay for store teammates, partially balanced by increases in management salaries. Overall, payroll expenses are relatively flat, balanced by lower incentive compensation accruals and reductions in online shipping costs. These are the primary contributors to selling expenses. For G&A, one notable aspect is the accrual for additional PTO, which is largely a timing issue. At the beginning of the year, we made some adjustments to our benefits package for our teammates, increasing paid time off in some areas, although the changes were not significant. We also modified how PTO is accrued, allowing a quicker accumulation and availability earlier in the year, which simplifies administration. This is more about timing than an actual increase in expenses expected to persist for the rest of the year.

Our next question is from Alan Glenn.

At the year-end call, I think you updated us on your approach to the stores and relocating some as leases expired and refreshing some. Is there any new news on your store plans for the rest of the year?

As Tom mentioned, we still have 19 remodels planned for the year and about 7 new stores, as one was pushed back to '25. We're actively working with our landlords to relocate many stores from mid-market malls to power centers or better locations. Each site is evaluated individually. We still have strong locations in some of our major mall stores, but we continually assess and improve our store placements across all markets. In the first quarter, we relocated 2 stores, which was the first time we had to close stores during their remodel because the new sites weren't ready in time. These 2 stores were closed for over 60 days. Additionally, we managed to keep open 2 stores in troubled malls, and now, at the end of the quarter, we have successfully moved them to new locations, which we are pleased about. Overall, our strategy of thorough evaluation remains the same, and we are satisfied with how the real estate decisions are turning out.

It looks like there are no further questions at this time.

Thank you. I apologize for trying to end the call early. We appreciate the questions and appreciate everyone participating today, and I hope you all enjoy the rest of the day. Thank you very much.