The Buckle - Q3 2024

Transcript

Operator (participant)

Good morning, and thank you for standing by. Welcome to Buckle's third 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 Ackerson, Vice President of Finance and Corporate Controller; Brady Fritz, Senior Vice President, General Counsel, and Corporate Secretary. As they review operating results for the third quarter, which ended October 28, 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.

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. I'd now like to turn the conference over to your host, Tom Heacock.

Thomas Heacock (Senior VP, Treasure, and CFO)

Good morning, and thanks for being with us this morning. Our November 17, 2023, press release reported that net income for the 13-week third quarter, which ended October 28, 2023, was $51.8 million, or $1.04 per share on a diluted basis, which compares to net income of $61.4 million or $1.24 per share on a diluted basis for the prior year, 13-week third quarter, which ended October 29, 2022. Year-to-date net income for the 39-week period ended October 28, 2023, was $140.3 million, or $2.81 per share on a diluted basis, compared to net income of $166.8 million, or $3.37 per share on a diluted basis for the prior year, 39-week period ended October 29, 2022.

Net sales for the 13-week third quarter decreased 8.7% to $303.5 million, compared to net sales of $332.3 million for the prior year, 13-week third quarter. Comparable store sales for the quarter decreased 9.2% in comparison to the same 13-week period in the prior year, and our online sales decreased 16.2% to $46.1 million. Year-to-date net sales decreased 6.9% to $878.7 million for the 39-week fiscal period ended October 28, 2023, compared to net sales of $943.4 million for the prior year, 39-week fiscal period, which ended October 29, 2022.

Comparable store sales for the year-to-date period were down 7.3% in comparison to the same 39-week period in the prior year, and our online sales decreased 9.4% to $141 million. For the quarter, UPTs decreased approximately 0.5%, the average unit retail increased about 0.5%, and the average transaction value increased slightly. Year-to-date, our UPTs were flat, the average unit retail increased approximately 0.5%, and the average transaction value increased also about 0.5%. Gross margin for the quarter was 48.5%, down 130 basis points from 49.8% in the third quarter of 2022. The current quarter decline is the result of deleveraged buying, distribution, and occupancy expense as merchandise margins were flat for the quarter.

Year-to-date gross margin was 47.7%, down 140 basis points from 49.1% in the prior year, with the year-to-date decline being the result of 110 basis points of deleveraged buying, distribution, and occupancy expense, along with a 30 basis point decline in merchandise margins. Selling general administrative expenses for the quarter were 27.4% of net sales, compared to 25.9% for the third quarter of 2022, and year-to-date SG&A was 27.8% of sales, compared to 26% for the same period last year. The third quarter increase was due to a 130 basis point increase in store labor-related expenses, a 30 basis point increase in G&A salaries, a 30 basis point increase in equity compensation expense, and a 20 basis point increase in marketing spend.

These increases were partially offset by a 50 basis point decrease in incentive compensation accruals and a 10 basis point decrease in certain other SG&A expense categories. Our operating margin for the quarter was 21.1%, compared to 23.9% for the third quarter of fiscal 2022, and for the year-to-date period, our operating margin was 19.9%, compared to 23.1% 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 third quarter net income to $51.8 million for 2023, compared to $61.4 million. Net income to $140.3 million for fiscal 2023, compared to $166.8 million for fiscal 2022.

Our press release also included a balance sheet as of October 28, 2023, which included the following: inventory of $152.3 million, which was essentially flat with inventory levels at the same time a year ago, and $357.6 million of total cash and investments. We ended the quarter with $124.1 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $10.1 million, and depreciation expense was $5 million. For the year-to-date period, capital expenditures were $28 million, and depreciation expense was $14.9 million. Our year-to-date capital spending was broken down as follows: $27 million for new store construction, store remodels, and technology upgrades, and $1 million for capital spending at the corporate headquarters and distribution center.

During the quarter, we opened three new stores and completed four full store remodels, two of which were relocations into new outdoor shopping centers. Additionally, we opened two new stores earlier this month in Park City, Utah, and Bristol, Tennessee, and completed 1 additional full store remodel, which brings our year-to-date counts to seven new stores, 15 full remodels, and three store closures. For the remainder of the year, we anticipate opening two additional new stores and completing four more full remodeling projects. Buckle ended the quarter with 443 retail stores in 42 states, compared with 441 stores in 42 states at the end of the third quarter last year. And now I'll turn it over to Adam Ackerson, our Vice President of Finance.

Adam Akerson (VP of Finance and Corporate Controller)

Thanks, and good morning. Women's merchandise sales for the quarter were down about 10.5% against the prior year and represented approximately 45.5% of sales, compared to 46.5% in the prior year. Average denim price points increased from $78.55 in the third quarter of fiscal 2022 to $79.50 in the third quarter of fiscal 2023, while overall average women price points increased about 1% from $48.80 to $49.35. On the men's side, merchandise sales for the quarter were down about 7% against the prior year, representing approximately 54.5% of total sales, compared to 53.5% in the prior year.

Average denim price points increased from $87.25 in the third quarter of fiscal 2022 to $87.95 in the third quarter of fiscal 2023. For the quarter, overall average men's price points increased approximately 2% from $51.80 to $52.85. On a combined basis, accessory sales for the quarter were down approximately 5% against the prior year, while footwear sales were down about 31%. These two categories accounted for approximately 10% and 6%, respectively, of third quarter net sales, which compares to 9.5% and 7.5% for each in the third quarter of fiscal 2022. For the quarter, average accessory price points were up approximately 2.5%, and average footwear price points were up about 8.5%.

Denim accounted for approximately 43.5% of sales, and tops accounted for approximately 30.5%, which compares to 42.5% and 30.5% for each in the third quarter of fiscal 2022. For both our men's and women's business, better performing categories included our short sleeve and shorts business, in addition to lightweight long sleeves, as the weather remained unseasonably warm across much of the country. Given slower sell-through than some of our more traditional fall assortments, we were pleased with our ability to keep both inventory levels and merchandise margins flat year-over-year. Our Q3 comparisons also continued to be challenged with declines in our HEYDUDE volume, particularly on the men's side. Third quarter net sales for our men's business, without HEYDUDE, were down 4.1%.

We remain encouraged by the growth and performance in our youth business, with the combined youth business growing approximately 2% for the quarter, building on growth of 26.5% a year ago. We were also pleased with the continued growth in our private brands, with private label representing 47% of sales versus 46% in the third quarter of fiscal 2022. With that, we welcome your questions.

Operator (participant)

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 question, please state your name and firm affiliation. Our first question is from Mauricio Serna. Mauricio, I'm gonna go ahead and give you permission to unmute.

Mauricio Serna (Analyst)

Great. Good morning. Hopefully, you can hear me. This is Mauricio Serna from UBS. Just wanted to ask about, you know... I know, like, in Q4, I think you have an additional week in the quarter. So just wanna make sure, like, you know, I suppose there's a contribution to sales, but also wanted to understand if that tends to be historically good or bad for margins. And then on the comp sales for, you know, for this quarter, the 3Q, you know, I noted that it deteriorated, like, every month was weaker than the previous one. So I just wanted to, you know, ask if there's anything that you would call out, maybe from a fashion standpoint, that is... you think is causing this, you know, weakening performance.

I would probably think that it's also probably relatively weaker compared to peers. Thank you.

Thomas Heacock (Senior VP, Treasure, and CFO)

Good morning, and thank you. The fifth week, we would project sales of approximately $17 million for that week.

Dennis Nelson (President and CEO)

... And then for the comp sales, I mean, you know, we're going against two of our best years ever. And I think as was mentioned in the script, the unseasonably warm weather probably had more of an effect on people getting out and just traffic in the stores. You know, as we travel our stores, the teams seem very excited and the product's looking very good. And so I think from that standpoint, our fashion, we are on target and just looking to build the traffic.

Mauricio Serna (Analyst)

Got it. And sorry, I don't know if you... Can you tell us, like, if the additional week is that good for the margins? Or how does that affect the company's margins?

Thomas Heacock (Senior VP, Treasure, and CFO)

Yeah, that is a better margin week, just without being fully loaded for some of the costs that are, I mean, not allocated for that week. So, like, a rent or different things are not fully allocated. So it is a better margin week than a typical week for January.

Mauricio Serna (Analyst)

Got it. Thank you so much.

Dennis Nelson (President and CEO)

Thank you.

Operator (participant)

Okay, our next question is from John Braatz. John, I'm gonna go ahead and give you permission to unmute. John, you should have received the prompt to unmute. Okay, it looks like John is not unmuting. Okay, it looks like we have a follow-up question from Mauricio Serna. I'll go ahead and give Mauricio permission to unmute.

Mauricio Serna (Analyst)

Got it. Okay, sorry. Yeah. Thanks again. Yeah, I just had a couple of follow-ups. I guess, like, if I look into the results, the selling expenses, I noted that it was down 5%. Just want to understand, like, what were the, I mean, drivers behind that. And then I know that you talked about the inventory being in good shape. Maybe you could elaborate a little bit more on that. Like, how do you feel about that, especially as we head into the holiday season? Like, it's... I know, like, December is a particularly important month for you, so, you know, how do you feel about inventory and I guess, the consumer at this point ahead of the holiday season? Thank you.

Thomas Heacock (Senior VP, Treasure, and CFO)

Mauricio, this is Tom. I'll take the first question, turn it over to Dennis for the second question. But really, the driver, when you look at SG&A, a lot of those are people-related, so compensation, benefits, costs. The decrease quarter-over-quarter for the selling expense was really around accruals for incentive compensation, which is consistent with the trend that we've seen so far this year.

Dennis Nelson (President and CEO)

On the inventory, we feel pretty good about that. I would say we have a normal markdown cadence right now, and we'll just be offering a few specials over the Black Friday weekend. You know, the youth and gals has had some nice growth, so we have some of the increase there. But our selection and our private brands in denim we feel really good about. You know, the fall/winter inventory we are comfortable with as we go into holiday and expect to see a good season.

Mauricio Serna (Analyst)

Thanks so much.

Dennis Nelson (President and CEO)

Thank you.

Operator (participant)

Look, 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 will now turn the call back over to Buckle for any closing remarks.

Thomas Heacock (Senior VP, Treasure, and CFO)

We thank everyone for their participation today, and everybody have a wonderful weekend and enjoy your week next week.