Buckle Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 26, 2023

There are 8 speakers on the call.

Operator

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 is 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 Ackerson, Vice President of Finance and Corporate Controller. As they review operating results for the Q1, which ended April 29th of 2023. They would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement.

Operator

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.

Operator

Additionally, the company does not authorize section 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. And as a reminder, today's webcast is being recorded. And now I will turn things over to your host, Tom Heacock. Tom, over to you.

Speaker 1

Good morning and thanks for joining us this morning. Our May 26, 2023 press release reported that net income for the 13 week 1st Quarter ended April 29, 2023 was $42,900,000 or $0.86 per share on a diluted basis, which compares to net income of $55,300,000 or $1.12 per share on a diluted basis for the prior year 13 week Q1 that ended April 30, 2022. Net sales for the 13 week Q1 decreased 8.5% to $282,800,000 compared to net sales of $309,100,000 for the prior year 13 week Q1. 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 were down 5.6% to $51,300,000 For the quarter, UPTs decreased or increased approximately 2.5%, The average unit retail decreased approximately 0.5% and the average transaction value increased about 1.5%. Gross margin for the quarter was 47.1 percent, down 210 basis points from 49.2% for the Q1 of 2022.

Speaker 1

The current quarter decline is the result of 140 basis points of deleveraged buying distribution and occupancy expense along with a 70 basis point decline in merchandise margins. Selling, general and administrative expenses for the quarter were 28.1 percent of net sales compared to 25.6 percent for the Q1 of 20 The Q1 increase was primarily due to a 200 basis point increase in store labor related expenses along with increases across several other SG and A expense categories, which had a combined 150 basis point impact And we're 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 Q1 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 1st quarter net income to $42,900,000 for fiscal 2023 compared to $55,300,000 for fiscal 2022. Our press release also included a balance sheet as of April 29, 2023, included the following: inventory of $137,700,000 which was up 13.7 percent from $121,200,000 as of April 30, 2022 and $300,000,000 in total cash and investments.

Speaker 1

We ended the quarter with $116,100,000 in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $9,300,000 and depreciation expense was $4,900,000 The Q1 capital spending is broken down as follows: $8,800,000 for new store construction, store remodels and technology upgrades And $500,000 for capital spending at the corporate headquarters and distribution center. During the quarter, we opened 2 new stores, Completed 4 full remodels, 3 of which were relocations into new outdoor shopping centers and closed 3 stores. For the remainder of the year, we plan on opening 7 additional new stores and completing 13 more full remodel projects. Buckle ended the quarter with 4 40 retail stores in 42 states compared with 4 39 stores in 42 states at the end of the Q1 of fiscal 2022.

Speaker 1

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

Speaker 2

Thanks, Tom. Women's merchandise sales for the quarter were down about 10.5% against the prior year and represented approximately 47.5 percent of sales compared to 48.5 percent in the prior year. Average denim price points increased from $76.60 in the Q1 of fiscal 2022 to $79.80 in the Q1 of fiscal 2023, Well, the overall average women's price point increased about 4.5 percent from $45.45 to 47.40 On the med side, merchandise sales for the quarter were down about 8% against the prior year, representing approximately 52.5% of total sales There is 51.5 percent in the prior year. Average denim price points increased from $86 in the Q1 of fiscal 2022 to $88.80 in the Q1 of fiscal 'twenty three. 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 9.5% against the prior year, while footwear sales were down about 39%.

Speaker 2

These two categories accounted for approximately 11% and 8%, respectively, of the 1st quarter net sales, which compares to 9% 12% for each in the Q1 of fiscal 'twenty 2. 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 percent of total sales and tops accounted for approximately 27%, which compares to 40% 27.5% for each in the Q1 of fiscal 'twenty 2. Our buying teams continue 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 Q1 of 2022.

Speaker 2

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 sleeve tees and shorts have us well positioned moving into the summer selling season. On the women's side, denim shorts performed well and we anticipate that carrying through to the back to school season, carrying well with continued newness in our summer and fashion tops. And with that, we will open your questions.

Speaker 2

Thank you.

Operator

Thank you so much. And as a reminder for participants, if you would like to ask a question, please Use the raise your hand tab located in the bottom menu of your Zoom app. And prior to asking your question, will you please ask that you state your name and your firm affiliation? And we will hear first from John Braatz. And I believe John you are with Kansas City Capital Associates.

Operator

So John please go ahead. And John, you should see the option to unmute there in the lower left corner of your screen.

Speaker 2

Is that better?

Operator

Perfect. Thank you.

Speaker 3

I'm sorry. Couple of questions. Obviously, it's a little bit difficult 1st quarter in terms of sales. At the store level, are you adjusting labor costs to reflect The current environment, so are you seeing a little bit of that? Are you doing a little bit of that?

Speaker 4

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 With what's going on with inflation and stuff for our teams, but 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 2 years, great success where the They were kind of unusually low. It's still below several years ago As far as the cost per step, so it is on our radar and continue to work with that.

Speaker 3

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

Speaker 4

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, but also a year ago, we had kind of a pinup Demand for that category. And so we had unusually high sales, the 1st part of spring on the brand. And so we were anniversarying tough comps And we'll still have some headwinds as we go through the year, but not at the same degree. I think the Sales were about $12,000,000 in the Q1 a year ago on that.

Speaker 4

And the rest of the year, Not counting December, I think it drops to $8,000,000 So we'll have a little less headwind there, but it's kind of the part of the fashion cycle that goes on. Not the

Speaker 3

Not to name names, but are we talking about Hey Dude?

Speaker 4

That would be the key one, yes.

Speaker 3

Okay. All right. Thank you. And lastly, Gunnar, I think you in the commentary is 7 new stores for the remainder of the year, and 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?

Speaker 3

Is the are there some Retail openings that, so to speak, that just that you find just very attractive at this time, maybe because other retailers left. But why the new store growth?

Speaker 4

So 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 some of these markets. And also, we see 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. And we've met some new real estate people that have given us very good opportunities to work with And 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 and 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.

Speaker 2

Okay. All right. Thank you.

Speaker 4

You're welcome.

Operator

And we will hear next from Mauricio Serna with UBS.

Speaker 5

Hi, yes, good morning. Can you hear me okay? Yes. Please continue. Great, great.

Speaker 5

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? And then the merchandise margin, What is driving that contraction seeing that your merchant your private label penetration actually increased 150 basis points year over year.

Speaker 4

Okay. Yes. On the margin, 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 selling some branded denim that has been very good, but the margin is not Private label, where we kind of had low inventories a year ago on that. And I think Couple of those things are the main point.

Speaker 4

Some of the fashion tops, where there's better margin, where That's a little softer. The Q1 has probably had a little effect as well. Okay. Thanks.

Speaker 5

And then about the regional performance?

Speaker 4

I'm sorry, which?

Speaker 5

Sorry, any callouts on the regional's performance?

Speaker 4

Sorry, yes. Naturally, the southern parts, especially in Texas, there's Been good traffic, but I'd say in the majority of the others, there's been enough seasonal weather that's It's been challenging. It's had an effect on most other stores.

Speaker 5

Got it. Thank you very much.

Speaker 4

Thank you.

Operator

And 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.

Speaker 6

Good morning. How are you?

Speaker 4

Good morning. Good.

Speaker 6

Carlton Guest with Winter Harbor Capital. I wanted to build on a question earlier Store growth just a little bit. One of the positive features of Buckle of veneers 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?

Speaker 4

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 the traffic. And as I mentioned with the opening of power centers and other outlet opportunities for us, 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. So, we're kind of opportunity players and the Here again, we're starting to look at 'twenty four and seeing some possibilities there, but we're not ready to announce How many new ones there will be?

Speaker 6

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

Speaker 4

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

Speaker 6

And then 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 and your thinking or how does the company approach What's that view and the store decline count or the count of decline in the count of stores over the last several years until the recent upward trend?

Speaker 4

So as I mentioned, we've moved some of our stores Out of malls and in a lot of cases, we've been able to expand square footage, We have the location an updated store and people really enjoyed shopping those stores. So we're looking at Opportunities to maximize our results and I guess, we feel real good about each situation we're looking at and changing. And with everything we see going on, there's going to be some good opportunities, but we're still look at covering the downside and let the upside take care of its Which has served us well over the years.

Speaker 2

Sure. And then if I

Speaker 6

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.

Speaker 4

But Our total sales probably are best in the stores where 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. But still where we have strength is very good, but we do a reasonable amount outside of our territories too. Okay. Thank you.

Speaker 4

Thank you.

Operator

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

Speaker 7

Sorry about that. Can you hear me now?

Speaker 4

Yes, we

Operator

sure can.

Speaker 2

Okay. I

Speaker 7

apologize. Given your store footprint, which is tends to be in like smaller cities, close But not near right in 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 REIT, the retail climate?

Speaker 4

We don't have any specific ones. We look at a lot of different Information, usually, we're if that'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. But in our areas where we are Strong. We are pretty open to a lot of situations.

Speaker 4

We have some outstanding mall stores Throughout the Midwest and the larger cities and feel very comfortable with those. We are not in The Northeast Cities or Southern Florida Cities or the LA or San Francisco area, But outside of that, we are open to review the majority of the markets.

Speaker 7

Okay. Thanks. And then my other question is kind of micro based. Last year, there was a lot of disruption in freight forwarding And company is getting inventory. Have you guys experienced any of that or has that been pretty smooth for you so far?

Speaker 4

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

Operator

And 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. And we will now take a follow-up for Mauricio Serna.

Speaker 5

Great. Thanks for the follow-up. I just wanted to ask about inventory. I see that the growth has moderated sequentially from the Q4. I wanted to know if you See any, I guess, like pockets of inventory where you feel it's still high?

Speaker 5

And do you have any views or expectations on when you think The inventory growth will be more aligned with the sales growth. Thanks.

Speaker 4

Yes. Thank you. Here again for Q1, we did bring Bring product in, more of it for the Q1 than the Q2 and Very comfortable with our inventory levels at this point and probably the start in the Q3 will definitely be more in line with How sales

Speaker 5

are going? Perfect. Thank you.

Speaker 4

Yes.

Operator

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

Speaker 1

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

Operator

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

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Earnings Conference Call
Buckle Q1 2024
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