The Buckle - Q1 2024

Transcript

Operator (participant)

Well, good morning, and thank you for standing by, and welcome to Buckle's First Quarter Earnings Release Webcast. As a reminder, all participants are currently in a listen-only mode, but a question-and-answer session will be conducted following the company's prepared remarks, with instructions given at that time. 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, and Adam Akerson, Vice President of Finance and Corporate Controller. As they review operating results for the first quarter, which ended April 29th, 2023, 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 is as follows: 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 express 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. Now I will turn things over to your host, Tom Heacock. Tom, over to you.

Tom Heacock (SVP of Finance, Treasurer, and CFO)

Good morning, and thanks for joining us this morning. Our May 26th, 2023, press release reported that net income for the 13-week first quarter ended April 29, 2023, was $42.9 million, or $0.86 per share on a diluted basis, which compares to net income of $55.3 million, or $1.12 per share on a diluted basis for the prior year, 13-week first quarter that ended April 30th, 2022. Net sales for the 13-week first quarter decreased 8.5% to $282.8 million, compared to net sales of $309.1 million for the prior year, 13-week first quarter.

Comparable store sales for the quarter decreased 9.2% in comparison to the same 13-week period in the prior year. Our online sales were down 5.6% to $51.3 million. For the quarter, UPTs decreased or increased approximately 2.5%. The average unit retail decreased approximately 0.5%. The average transaction value increased about 1.5%. Gross margin for the quarter was 47.1%, down 210 basis points from 49.2% for the first quarter of 2022. The current quarter decline is the result of 140 basis points of deleverage buying distribution and occupancy expense, along with a 70 basis point decline in merchandise margins.

Selling general administrative expenses for the quarter were 28.1% of net sales, compared to 25.6% for the first quarter of 2022. The first quarter increase was primarily due to a 200 basis point increase in store labor-related expenses, along with increases across several other SG&A expense categories, which had a combined 150 basis point impact and were offset by a reduction in expense related to accruals for incentive compensation expense, which had a 100 basis point impact. Our operating margin for the quarter was 19.0%, compared to 23.6% for the first quarter of fiscal 2022.

Income tax expense as a percentage of pre-tax net income for both the current and prior year fiscal quarter was 24.5%, bringing first quarter net income to $42.9 million for fiscal 2023, compared to $55.3 million for fiscal 2022. Our press release also included a balance sheet as of April 29th, 2023, including the following: inventory of $137.7 million, which was up 13.7% from $121.2 million as of April 30th, 2022, and $300 million in total cash and investments. We ended the quarter with $116.1 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $9.3 million, and depreciation expense was $4.9 million.

The first quarter capital spending is broken down as follows: $8.8 million for new store construction, store remodels, and technology upgrades, and $0.5 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened two new stores, completed four full remodels, three of which were relocations into new outdoor shopping centers, and closed three stores. For the remainder of the year, we plan on opening seven additional new stores and completing 13 more full remodel projects. Buckle ended the quarter with 440 retail stores in 42 states, compared with 439 stores in 42 states at the end of the first quarter of fiscal 2022. Now I'll turn it over to Adam Akerson, Vice President of Finance.

Adam Akerson (VP of Finance, Corporate Controller, and Assistant Treasurer)

Thanks, Tom. Women's merchandise sales for the quarter were down about 10.5% against the prior year and represented approximately 47.5% of sales, compared to 48.5% in the prior year. Average denim price points increased from $76.60 in the first quarter of fiscal 2022 to $79.80 in the first quarter of fiscal 2023. The overall average women's price point increased about 4.5%, from $45.45 to $47.40. On the men's side, merchandise sales for the quarter were down about 8% against the prior year, representing approximately 52.5% of total sales, compared to 51.5% in the prior year.

Average denim price points increased from $86 in the first quarter of fiscal 2022 to $88.80 in the first quarter of fiscal 2023. For the quarter, overall average men's price points increased approximately 3.5%, from $50.75 to $52.60. On a combined basis, accessory sales for the quarter were up approximately 9.5% against the prior year, while footwear sales were down about 39%. These two categories accounted for approximately 11% and 8%, respectively, of the first quarter net sales, which compares to 9% and 12% for each in the first quarter of fiscal 2022. For the quarter, average accessory price points were up approximately 12%, and average footwear price points were up 6.5%.

For the quarter, denim accounted for approximately 41.5% of total sales, and tops accounted for approximately 27%, which compares to 40% and 27.5% for each in the first quarter of fiscal 2022. Our buying teams continued to introduce new brands and provide a diverse assortment of private label product. For the quarter, private label represented 44% of sales, versus 42.5% in the first quarter of 2022. During a difficult spring selling season, we were pleased with the performance of both our men's and women's business. Outside of footwear, which accounted for approximately half of the total sales decline for the quarter, we saw good selling across several categories.

Denim on the men's side performed well, and we believe our selection of polos, short-sleeved tees, and shorts have us well positioned moving into the summer selling season. On the women's side, denim short performed well, and we anticipate that carrying through to the back-to-school season, pairing well with continued newness in our summer and fashion tops. With that, we welcome your questions. Thank you.

Operator (participant)

Thank you so much. As a reminder for participants, if you would like to ask a question, please use the Raise Your Hand tab. It's located in the bottom menu of your Zoom app. Prior to asking your question, we please ask that you state your name and your firm affiliation. We will hear first from John Braatz. I believe, John, you are with Kansas City Capital Associates. John, please go ahead. John, you should see the option to unmute there in the lower left corner of your screen.

Jon Braatz (Partner and Senior Equity Analyst)

That better?

Operator (participant)

Perfect. Thank you.

Jon Braatz (Partner and Senior Equity Analyst)

I'm sorry. Couple questions. Obviously, it's a little bit difficult, first quarter in terms of sales. At the store level, are you adjusting labor costs, to reflect, the current environment? Are you seeing a little bit of that? Are you doing a little bit of that?

Dennis Nelson (President and CEO)

Good morning, John. Yes, we are doing our best. I mean, with the sales leverage down with the such, we have had to increase some wages, you know, with what's going on with inflation and stuff for our teams. Our teams are continually working the schedules and adjusting to handle that the best we can. Although the that cost is up over the last two years of great success, where the they were kind of unusually low. It's still below several years ago as far as the cost percent. You know, it is on our radar and continue to work with that.

Jon Braatz (Partner and Senior Equity Analyst)

Okay. On the footwear side, obviously, there was a lot of weakness in footwear sales, and it's coming off some difficult comps. Is there anything specific to footwear that's behind the weakness? There's a few new styles, or we all have enough shoes? Anything specific to footwear that you see that's behind the weakness?

Dennis Nelson (President and CEO)

Yes, in our branded, casual footwear, there's increased inventory from the brand that in the market that has cut into what we were doing. Also, a year ago, we had kind of a pent-up demand for that category, and so we had unusually high sales the first part of spring on the brand. We were anniversarying tough comps and, you know, we'll still have some headwinds as we go through the year, but not at the same degree. I think the sales were about $12 million in the first quarter a year ago on that, and the rest of the year, not counting December, I think it drops to $8 million.

We'll have a little less headwind there, but it's kind of the part of the fashion cycle that goes on.

Jon Braatz (Partner and Senior Equity Analyst)

Not to name names, but are we talking about HEYDUDE?

Dennis Nelson (President and CEO)

That would be the key one, yes.

Jon Braatz (Partner and Senior Equity Analyst)

Okay. All right. Thank you. Lastly, Dennis, I think you in the commentary, seven new stores for the remainder of the year. That's a little bit different than what we've seen in the past, where it's been somewhat limited. What's your thinking behind the additional new stores? Are there some retail openings that, so to speak, that you find very attractive at this time? Maybe because other retailers left, why the new store growth?

Dennis Nelson (President and CEO)

What we've seen over the last couple of years is changes in markets, and now we're considering more power centers and other situations with our success that we've learned from, that we feel good about, you know, some of these markets. Also we see, you know, with the people moving and changes from the last couple of years, that new opportunities are being created and there's been some good development. We've met some new real estate people that have given us very good opportunities to work with. Opening up to the potential where we have opened in a couple outlet store or outlet malls, that previous you had to be an outlet store to be part of, and we would just only do our regular store.

They've seen our success and welcome us to their projects and where they have excellent traffic, and we feel that, our product will, work well in their centers. That's given us some additional opportunities as well.

Jon Braatz (Partner and Senior Equity Analyst)

Okay. All right. Thank you.

Dennis Nelson (President and CEO)

You're welcome.

Operator (participant)

We will hear next from Mauricio Serna with UBS.

Mauricio Serna (Executive Director and Senior Stock Analyst)

Hi. Yes, good morning. Can you hear me okay?

Dennis Nelson (President and CEO)

Yes. Thank you.

Operator (participant)

Yes, please continue.

Mauricio Serna (Executive Director and Senior Stock Analyst)

Great. Great, thanks for taking our questions. I guess I wanted to ask if you saw any differences in performance by regions, anything that you would call out? On the merchandise margin, you know, what is driving that contraction, seeing that, you know, your private label penetration actually increased 150 basis points year-over-year?

Dennis Nelson (President and CEO)

Okay. Yes. On the margin, you know, our footwear margins before were very good, and we've seen a little drop back there. For the most part, I think we're also, you know, selling some branded denim that has been very good, but the margin's not as good as private label, where we kind of had low inventories a year ago on that. I think a couple of those things are the main point, you know, some of the fashion tops, where there's better margin, where that's a little softer, the first quarter has probably had a little effect as well.

Mauricio Serna (Executive Director and Senior Stock Analyst)

Okay. Thanks. And about the regional performance?

Dennis Nelson (President and CEO)

I'm sorry, which?

Mauricio Serna (Executive Director and Senior Stock Analyst)

sorry, any call outs on the regional performance?

Dennis Nelson (President and CEO)

Oh, sorry, yes. You know, naturally, the southern parts, especially in Texas South, there's been good traffic. I'd say in the majority of the others, there's been enough seasonal weather that's been challenging, that's had an effect on most other stores.

Mauricio Serna (Executive Director and Senior Stock Analyst)

Got it. Thank you very much.

Dennis Nelson (President and CEO)

Thank you.

Operator (participant)

Again, as a reminder to the audience, please use the Raise Hand feature if you would like to ask a question today. We'll move on to Carlton Getz.

Carlton Getz (Managing Director and Chief Investment Officer)

Morning. How are you?

Dennis Nelson (President and CEO)

Morning. Good.

Carlton Getz (Managing Director and Chief Investment Officer)

Carlton Getz with Winter Harbor Capital. I wanted to build on a question earlier concerning store growth just a little bit. One of the positive features of Buckle over the years has been a very measured approach to store growth, although store counts have declined since about 2015 up until last year. Do you expect that this trajectory towards positive location growth to be a longer term trend, or is it dependent on results of the new stores that you're opening this year?

Dennis Nelson (President and CEO)

Well, in our meetings, what we're seeing is a lot of good opportunities to reposition stores, whether we move out of malls that are lost to traffic. As I mentioned, with the opening of power centers and other outlet opportunities for us, you know, I don't know if each year will be similar amount of stores, but we're certainly open to new stores where the opportunity creates itself. We're kind of opportunity players and the, you know, here again, we're starting to look at 2024 and seeing some possibilities there, but we're not ready to announce how many new ones there will be.

Carlton Getz (Managing Director and Chief Investment Officer)

Sure. with respect to the new stores that are opening, are these primarily in adjacent geographic locations to where the company already has a significant number of stores, or are these further afield?

Dennis Nelson (President and CEO)

Most of them are in regions that we do very well in.

Carlton Getz (Managing Director and Chief Investment Officer)

Okay. finally, just expanding on that a little more. Buckle's maintained a very high return on equity and capital investment for many years, even when sales took a hit. Has the lack of growth left some value on the table with respect to that in your thinking, or how does the company approach that view and the store decline count, or the decline in the count of stores over the last several years until the recent upward trend?

Dennis Nelson (President and CEO)

As I mentioned, you know, we're, we've moved, some of our stores out of malls, and in a lot of cases, we've been able to expand square footage, give the location, an updated store, and people have really enjoyed shopping, those stores. We're looking at, you know, opportunities to maximize our results. I guess we feel real good about each situation we're looking at and changing. With everything we see going on, there's gonna be some good opportunities. We're still look at, covering the downside and let the upside take care of itself, which has served us well over the years.

Carlton Getz (Managing Director and Chief Investment Officer)

Sure. If I may, one last question on e-commerce sales. Is the company's e-commerce sales experience concentrated in the areas where you have stores, or have you seen e-commerce drive brand extension in areas where you don't have geographic locations?

Dennis Nelson (President and CEO)

Our total sales probably are best in the stores in the states where we are strongest and continue to do well. A lot of times we see guests go online to see the newness and then go to the store to buy. Still where we have strength is very good, but we do, you know, do a reasonable amount outside of our territories too.

Carlton Getz (Managing Director and Chief Investment Officer)

Thank you.

Dennis Nelson (President and CEO)

Thank you.

Operator (participant)

Moving on to Alan Glenn. Alan, you should see the option to unmute in the lower left corner of your screen. Alan, you now have permission to speak if you'd like to go ahead and ask your question. Great. Thank you.

Alan Glenn (Analyst)

Sorry about that. Can you hear me now?

Operator (participant)

Yep, we sure can.

Alan Glenn (Analyst)

I apologize. given your store footprint, which is tends to be in, like, smaller cities, close, but not near, right in the urban, centers, do you have any favorite economic macro, indicators or metrics that, you like to look at to give you a feel for forward-looking, the retail climate?

Dennis Nelson (President and CEO)

We don't have any specific ones. We look at a lot of different information. Usually we're, you know, if it's... Most of the centers have traffic indicators. We look at sales of others in the centers. We have certain retail stores that we look at, depending on the market or such. In our areas where we are strong, we are pretty open to a lot of situations. We have some outstanding mall stores, you know, throughout the Midwest and the larger cities and feel very comfortable with those. You know, we are not in the Northeast cities or Southern Florida cities or the L.A. or San Francisco area. Outside of that, you know, we are open to review the majority of the markets.

Alan Glenn (Analyst)

Okay, thanks. My other question is kind of micro-based. Last year, there was a lot of disruption in freight forwarding and companies getting inventory. Have you guys experienced any of that, or has that been pretty smooth for you so far?

Dennis Nelson (President and CEO)

I'd say for the most part, it's been pretty smooth at this point.

Alan Glenn (Analyst)

Thanks.

Dennis Nelson (President and CEO)

Thank you.

Operator (participant)

As a final reminder to the audience, please use the Raise Your Hand tab located in the bottom menu of your Zoom app to ask a question today. We will now take a follow-up for Mauricio Serna.

Mauricio Serna (Executive Director and Senior Stock Analyst)

Great. Thanks for the follow-up. I just wanted to ask about inventory. I see that the growth has moderated sequentially from the fourth quarter. I wanted to, you know, to know if you see any, I guess, like, pockets of inventory where you feel it's still high, and do you have any views or expectations on when you think the inventory growth will be more aligned with the sales growth? Thanks.

Dennis Nelson (President and CEO)

Yes, thank you. Here again, for first quarter, we did bring spring product in, more of it for the first quarter than the second quarter, very comfortable with our inventory levels at this point. Probably the start of the third quarter will definitely be more in line with how sales are going.

Mauricio Serna (Executive Director and Senior Stock Analyst)

Perfect. Thank you.

Dennis Nelson (President and CEO)

Yep.

Operator (participant)

We have no further questions. I will turn things back to Buckle for any closing remarks.

Tom Heacock (SVP of Finance, Treasurer, and CFO)

If there are no further questions, we'll conclude today's call and thank you all for your participation, and hope everyone has a wonderful holiday weekend. Thank you very much.

Operator (participant)

Thank you. Again, that does conclude today's earnings release. We thank you all for your participation. Enjoy your summer. We'll see you next quarter.