The Buckle - Q2 2025

Transcript

Operator (participant)

Good morning, and thank you for standing by. Welcome to Buckle's second quarter earnings release webcast. As a reminder, all participants are currently in a listen-only mode. 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; Adam Akerson, Vice President of Finance and Corporate Controller; and 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 express written consent. Any unauthorized reproductions or recordings of the calls 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.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

Good morning, and thanks for joining us this morning. Our August twenty-third, 2024 press release reported that net income for the thirteen-week second quarter, which ended August third, 2024, was $39.3 million, or $0.78 per share on a diluted basis, compared to net income of $45.6 million, or $0.92 per share on a diluted basis for the prior year, thirteen-week second quarter, which ended July twenty-ninth, 2023. Year-to-date net income for the 26 week period ended August third, 2024, was $74.1 million, or $1.48 per share on a diluted basis, compared to net income of $88.6 million or $1.78 per share on a diluted basis for the prior year, 26 week period ended July 29, 2023.

Net sales for the 13-week second quarter decreased 3.4% to $282.4 million, compared to net sales of $292.4 million for the prior year, 13-week second quarter. Comparable store sales for the 13-week fiscal quarter decreased 6.6% in comparison to the same 13-week period in the prior year, and our online sales decreased 15.2% to $37 million for the 13-week fiscal quarter, compared to $43.6 million for the prior year, 13-week fiscal quarter. Compared to the same 13-week period a year ago, online sales were down 15%. Year-to-date net sales decreased 5.3% to $544.9 million, compared to net sales of $575.3 million for the prior year 26-week fiscal period.

Comparable store sales for the year-to-date period decreased 7.7% in comparison to the same 26-week period in the prior year, and online sales decreased 14.2% to $81.4 million for the year-to-date period, compared to $94.9 million for the prior year, 26-week fiscal period. Compared to the same 26-week period a year ago, online sales were down 14%. For the quarter, UPTs decreased approximately 1.5%. The average unit retail increased approximately 2%, and the average transaction value increased about 0.5%. Year-to-date UPTs decreased approximately 3.5%. The average unit retail increased approximately 4%, and the average transaction value increased approximately 0.5%.

Gross margin for the quarter was 46.9%, down 40 basis points from 47.3% in the second quarter of 2023. The current quarter decline was the result of a 90 basis point increase in occupancy costs, along with a 20 basis point increase in distribution and buying costs, both of which were partially offset by a 70 basis point improvement in merchandise margins. Year-to-date gross margin was 46.5%, down 70 basis points from 47.2% in the prior year. The year-to-date decline was the result of a 110 basis point increase in occupancy costs and a 20 basis point increase in distribution and buying costs, which were partially offset by a 60 basis point improvement in merchandise margins.

general, and administrative expenses for the quarter were 29.8% of net sales, compared to 27.9% for the second quarter of 2023, and year to date, SG&A was 29.9% of net sales, compared to 28% for the same period last year. The second quarter increase was due to a 125 basis point increase in store labor-related expenses, a 65 basis point increase related to digital commerce investments, a 25 basis point increase in marketing spend, a 25 basis point increase in G&A salaries, and a 35 basis point increase in certain other SG&A expense categories.

These increases were partially offset by a 60 basis points decrease in incentive compensation accruals and a 25 basis points decrease in e-commerce shipping expenses. Our operating margin for the quarter was 17.1%, compared to 19.4% for the second quarter of fiscal 2023. For the year-to-date period, our operating margin was 16.6%, compared to 19.2% for the same period last year. Income tax expense as a percentage of pre-tax net income for both the current and prior year fiscal quarter was 24.5%, bringing second quarter net income to $39.3 million for fiscal 2024, compared to $45.6 million for fiscal 2023.

Income tax expense as a percentage of pre-tax net income for both the current and prior year, year-to-date periods, was also 24.5%, bringing year-to-date net income to $74.1 million in 2024, compared to $88.6 million in 2023. Our press release also included a balance sheet as of August 3, 2024, which included the following: inventory of $131.4 million, down 3.4% from the same time a year ago, and $336.1 million in total cash and investments. We ended the quarter with $139.3 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $11.5 million, and depreciation expense was $5.7 million.

For the year-to-date period, capital expenditures were $22.3 million, and depreciation expense was $11.1 million. Year-to-date capital spending is broken down as follows: $21.8 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 seven full remodels, one of which was a relocation into a new outdoor shopping center, and closed two stores, which brings our year-to-date counts to two new stores, 12 full remodels, and six store closures. For the remainder of the year, we plan on opening five additional new stores and completing six more 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 second quarter of 2023.

Now I'll turn it over to Adam Akerson, our Vice President of Finance.

Adam Akerson (VP of Finance)

Thanks, Tom. Women's merchandise sales for the quarter were down about 3% against the prior year fiscal quarter and represented approximately 43.5% of total sales. On a 13-week comparable basis, women's merchandise sales were down approximately 5.5%. Average denim price points increased from $79.10 in the second quarter of fiscal 2023 to $80.60 in the second quarter of fiscal 2024, while overall average women's price points increased about 0.5% from $42.85 to $43.15. On the men's side, merchandise sales for the quarter were down about 3.5% against the prior year fiscal quarter, representing approximately 56.5% of total sales.

On a thirteen-week comparable basis, men's merchandise sales were down approximately 6.5%. Average denim price points decreased from $89.50 in the second quarter of fiscal 2023 to $89.20 in the second quarter of fiscal 2024. For the quarter, overall average men's price points increased approximately 2% from $49.25 to $50.20. On a combined basis, accessory sales for the thirteen-week quarter were down approximately 4% against the prior year thirteen-week comparable period, while footwear sales were down about 27%.

These two categories accounted for approximately 11.5% and 5.5%, respectively, of the second quarter net sales, which compares to 11.5% and 7.5% for each in the second quarter of fiscal 2023. For the quarter, average accessory price points were up slightly, while average footwear price points were up 5%. For the quarter, denim accounted for approximately 35.5% of sales, and tops accounted for approximately 30%, which compares to 33% and 30% for each in the second quarter of fiscal 2023. Compared to the same 13 weeks a year ago, our combined denim categories continued to outperform the total business and were down about 1.5%. Denim built momentum throughout the quarter and was down just slightly in fiscal July.

We are particularly pleased with the performance of our women's denim business being down just slightly for the quarter and up about 4.5% in fiscal July. Our women's business also saw strength in other bottom categories, with growth in both casual fashion pants and shorts for the quarter. On a combined basis, our tops categories were down about 7%. Our men's short-sleeved woven business was strong for the quarter, as were our women's basics and trend silhouettes. Additionally, we were pleased with the merchandise margin expansion for the quarter, even with down sales. We continue to be excited about the performance, along with the depth, quality, and variety of our private brands. For the quarter, private label represented 43% of sales versus 41% in the second quarter of 2023. With that, we welcome your questions.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

Thank you. As a reminder for participants, if you would like to ask a question, please raise your hand in the Zoom app. Prior to asking your questions, please state your name and firm affiliation. Our first question is from Mauricio Serna. Mauricio, I'll go ahead and unmute you at this time.

Mauricio Serna (Executive Director)

Great. Good morning, and thanks for taking my question. I guess, just wanted to get a little bit more details on what is driving, you know, the online channel significant underperformance, any particular initiatives that the company is doing there? And then on the merchandise margin, you know, it's nice to see another quarter of expansion actually accelerating versus the previous quarter. Maybe you could elaborate, you know, what is driving that, maybe in terms of maybe, like, more higher private label penetration, or, you know, cost controls or management around promotions, that would be super helpful. Thank you.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

... Good morning, Mauricio. I'll let Dennis take the merchandise margin question first, and then we'll jump into the Store One question.

Dennis Nelson (President and CEO)

Okay, good morning. Our denim continues to be very good in sell-through and newness, and we're having some nice margin expansion there, as well as our private brands continue to have solid demand and sell-through. So that's been very good as well. The kids' margins are improved, and just kind of overall, outside of footwear, we're very happy with the margin growth there.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

And then on the e-commerce initiatives, I mean, that's been a big priority for this year, you know, knowing that there was a gap between in-store performance and e-commerce, e-commerce performance last year and in the first part of this year. So, at the start of the quarter, we engaged third parties to come in and help us and assist our teams, to really do a comprehensive review of our website, focus on the shoppability of the site, looking at our analytics capabilities. And so throughout the quarter, we've made a lot of iterative improvements to the site, as it relates to navigation, to filters, to checkout, product display and groupings.

The next iteration of that is focusing on on-site search, but we really feel like we've made a lot of improvements to the site itself, the shoppability of the site, the experience of a guest on the site and their ability to find product. Throughout the quarter, you know, that led to increases in conversion, increases in a lot of on-site metrics in terms of positive interaction, positive guest shopping experience on the website, also increase in AOV. So really, the next version of where we're focusing is traffic. I think we talked in the first quarter, traffic has been a challenge to the site. During the quarter, we really re-reviewed our digital spend, marketing spend as it relates to driving traffic to e-com. A lot of it, prior to probably mid-July, was focused on guest acquisition.

We've really pivoted to and reallocated our budget and our dollars to a more balanced approach, focused on retention and acquisition. And I think that's paid a lot of dividends. You don't necessarily see it in the Q2 numbers, but we saw positive results in terms of traffic really late in the quarter as some of those initiatives kicked in.

Operator (participant)

There are no further questions in the queue. As a reminder, if you would like to ask a question, please raise your hand in the Zoom app. It looks like Mauricio has another question. Mauricio, I'll go ahead and unmute you at this time.

Mauricio Serna (Executive Director)

Great. Yeah, I just had another follow-up, and thank you, first of all, for answering the previous questions. Maybe on the operating expenses, you know, I remember in last quarter, there was, like, a timing issue that led to, like, elevated growth in general and administrative expenses, but now I still see, like, it was up, you know, like, total operating expenses were up 3.2%. You know, saw increases in both selling and general and administrative this time around. Just curious if you could elaborate a little bit more on what is driving that increase, you know, given that sales are still down, and any initiatives that the company's doing there to manage down those expenses, that'll be super helpful. Thank you.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

Yeah. Thank you, Mauricio. I mean, I think if you look at, we look at it kind of in two different buckets. We look at the selling and the SG&A. I think the SG&A was pretty consistent, Q1 to Q2. I mean, the increases year-over-year there are really the same things, and home office payroll is the big driver there, just as we continue to invest in our team here. If you look at selling, selling is where the biggest dollar increase was during Q2. The bulk of that, like we called out in the prepared remarks, was store payroll. And so that's a combination of a couple different things.

I mean, we're looking at a little bit of different periods with the shift in the calendar and the fiscal period, so that was part of it that led to an increase in hours. But then also just to remain competitive, I mean, we've seen wage inflation and so, you know, wages for our teammates and for our managers to make sure that we're recruiting the best talent for our stores and to take care of our guests has also been a part of that. So those are really the two big... Or one biggest driver there, and then the other piece on the selling side, like we called out, was the third-party relationship to help with our e-commerce.

Operator (participant)

Okay. Our next question is from Alan. Alan, I'll go ahead and unmute you at this time. Alan, you should be able to unmute.

Oh, sorry about that. Can you hear me now?

Yes.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

Yes. Thank you.

Okay. Yes. With the five stores you're opening, your new stores, are those in areas now that aren't served or haven't been served previously by a store that may have been closed?

Dennis Nelson (President and CEO)

We have one new store we just opened this week in California that is, you know, an unserved market for us. The four other stores later this year are in the markets we are in, but we feel will be good additions or not distract too much from any of our other business. That they should be very good long-term investments. One of them might make a change after the first of the year of a store taking over from another store, but basically new markets on those.

Operator (participant)

There are no further questions in queue. As a reminder, if you would like to ask a question, please raise your hand in the Zoom app. Okay, there are no further questions. I can go ahead and turn it back over to the Buckle for any closing remarks.

Tom Heacock (Senior VP of Finance, Treasurer, and CFO)

Thank you for participating today. If there are no further questions, we can wrap up the call. We thank everyone for participating and hope you all enjoy the rest of the day.