Buckle Q3 2024 Earnings Call Transcript

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November 17, 2023

There are 5 speakers on the call.

Operator

Good morning, and thank you for standing by. Welcome to Belco'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 Akerton, Vice President of Finance and Corporate Controller Brady Fritt, Senior Vice President, General Counsel and Corporate Security.

Operator

As they review operating results for the Q3, which ended October 28, 2023, they would like to reiterate their policy of not giving future sales or earnings guidance 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.

Operator

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 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 call 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 Eacock.

Speaker 1

Good morning, and thanks for being with us this morning. Our November 17, 2023, press release reported that net income For the 13 week Q3, which ended October 28, 2023, was 51,800,000 or $1.04 per share on a diluted basis, which compares to net income of $61,400,000 or $1.24 per share on a diluted basis for the prior year 13 week Q3, which ended October 29, 2022. Year to date net income for the 39 week period ended October 28, 2023 was $140,300,000 or $2.81 per share on a diluted basis Compared to net income of $166,800,000 or $3.37 per share on a diluted basis for the prior year 39 week period ended over 29, 2022. Net sales for the 13 week Q3 decreased 8.7% to $303,500,000 compared to net sales of $332,300,000 for the prior year 13 week Q3. 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 $46,100,000 Year to date net sales decreased 6.9 percent to $878,700,000 for the 39 week period ended October 28, 'twenty three compared to net sales of $943,400,000 for the prior year 39 week fiscal period, which October 29, 2022.

Speaker 1

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 141,000,000 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 percent in the Q3 of 2022.

Speaker 1

The current quarter decline is deleveraged buying, distribution and occupancy expense as merchandise margins were flat for the quarter. Year to date gross margin was 47 point 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 and administrative expenses for the quarter were 27.4 percent of net sales compared to 25.9% for the Q3 of 2022. And year to date, SG and A was 27.8 percent of sales compared to 26% for the same period last year. The 3rd quarter increase was due to a 130 basis point increase in store labor related expenses, a 30 basis point increase in G and A salaries, A 30 basis point increase in equity compensation expense and a 20 basis point increase in marketing spend.

Speaker 1

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 and A expense categories. Our operating margin for the quarter was 21.1% compared to 23.9% for the Q3 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 3rd quarter net income to $51,800,000 for 2023 compared to 61,400,000 net income to $140,300,000 for fiscal 2023 compared to $166,800,000 for fiscal 2022. Our press release also included a balance sheet as of October 28, 2023, which included Inventory of $152,300,000 which was essentially flat with inventory levels at the same time a year ago and $357,600,000 of total cash and investments.

Speaker 1

We ended the quarter with $124,100,000 in For the year to date period, capital expenditures were $28,000,000 and depreciation expense was $14,900,000 Our year to date capital spending was broken down as follows: $27,000,000 for new store construction, store remodels and technology upgrades and $1,000,000 for capital spending at the corporate headquarters and distribution center. During the quarter, we opened 3 new stores and completed 4 full store remodels, 2 of which were relocations into new outdoor shopping centers. Additionally, we opened 2 new stores earlier this month in Park City, Utah and Bristol, Tennessee and completed one additional full store remodel, Which brings our year to date counts to 7 new stores, 15 full remodels and 3 store closures. For the remainder of the year, we anticipate opening 2 new stores and completing 4 more full remodeling projects. Buckle ended the quarter with 4 43 retail stores in 42 states Compared with 4 41 stores in 42 states at the end of the Q3 last year.

Speaker 1

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

Speaker 2

Thanks and good morning. Webex 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 Q3 of fiscal 2022 to $79.50 in the Q3 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 percent of total sales compared to 53.5% in the prior year. Average denim price points increased from $87.25 in the Q3 of fiscal 2022 to $87.95 in the Q3 of 23. 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%.

Speaker 2

These two categories accounted for approximately 10% and 6%, respectively, of 3rd quarter net sales, which compares to 9.5% and 7.5% for each in the Q3 of fiscal 2022. For the quarter, average accessory price points were up approximately 0.5% 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 Q3 of fiscal 2022. 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.

Speaker 2

Our Q3 comparisons also continued to be challenged Declines in our Hey Dude volume, particularly on the men's side. 3rd quarter net sales for our men's business without Hey Dude 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 percent a year ago.

Speaker 1

We were also pleased with

Speaker 2

the continued growth in our private brands With private label representing 47 percent of sales versus 46% in the Q3 of fiscal 2022. And with that, we welcome your questions. Thank you.

Operator

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

Speaker 3

Great. Good morning. Hopefully, you can hear me. This is Mauricio Sarno from UBS. Just wanted to ask about I know like in Q4, I think you have an additional week in the quarter.

Speaker 3

So just want to make sure like, 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 this quarter, the 3Q, I noted that it deteriorated like every month was weaker than the previous one. So I just want to ask if there's anything that you would call out maybe from a Fashion standpoint that is you're saying this is causing this weakening performance and I would probably think that all of the total probably Relatively weaker compared to peers. Thank you.

Speaker 4

Good morning and thank you. The 5th week, we would project sales of approximately $17,000,000 for that week. And then for the comp sales, I mean, we're going against 2 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. As we travel our stores, the teams seem very And the product is looking very good.

Speaker 4

And so I think from that standpoint, our fashion, we are on target And just looking to build the traffic.

Speaker 3

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?

Speaker 1

Yes, that is a better margin week just without being fully 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.

Speaker 3

Thank you so much.

Speaker 4

Thank you.

Operator

Okay. Our next question is from John Brake. John, I'm going to go ahead and give you permission to unmute. John, you should have received the prompt to unmute. Okay, it looks like John is now unmuting.

Speaker 2

Okay. It looks like we have a follow-up question from Mauricio Serna. I'll go ahead and give Mauricio permission to unmute.

Speaker 3

Thanks again. Yes, 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 main drivers behind that? And then I know that you talked about inventory being in good shape.

Speaker 3

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 December is a particularly important month So how do you feel about inventory and I guess the consumer at this point ahead of the holiday season? Thank you.

Speaker 1

Mauricio, this is Tom. I'll take the first question and turn it over to Dennis for the second question. But really the driver when you look at SG and 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.

Speaker 4

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

Speaker 2

Thanks so much.

Speaker 4

Thank you.

Operator

There are no further questions in queue. Okay. There are no further questions. I will now turn the call back over to Buckle for any closing remarks.

Speaker 1

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

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Earnings Conference Call
Buckle Q3 2024
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