Buckle Q2 2024 Earnings Call Transcript

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August 18, 2023

There are 5 speakers on the call.

Operator

Good morning. Thank you for standing by and welcome to Buckle's Second Quarter Earnings Release Webcast. As a reminder, all participants are currently in a listen only mode and a Q and A session will be conducted following the company's prepared remarks and 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 Mackison, Vice President of Finance and Corporate Controller and Brady Fritz, Senior Vice President, General Counsel and Corporate Secretary, as they review operating results for the Q2, which ended July 29, 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.

Operator

All forward looking statements made by the company involve material risks and uncertainties and are subject to change based on the factors which may be beyond the company's controls. 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 of 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 cause should not be relied upon as the information may be inaccurate.

Operator

As a reminder, today's webcast is being recorded. I'd now like to turn the conference over to your host, Tom Heacock.

Speaker 1

Good morning, and thanks for joining us this morning. Our August 18, 2023, press release reported that net income for the 13 week Q2 ended July 29, 2023 was 45,600,000 Or $0.92 per share on a diluted basis, which compares to net income of $50,100,000 or $1.01 per share on a diluted basis for the prior year 13 week Q2, which ended July 30, 2022. Year to date net income for 26 week period ended July 29, 2023 was $88,600,000 or $1.78 per share on a diluted basis, which compares to net income of $105,400,000 or $2.13 per share on a diluted basis for the prior year 26 week period ended July 30, 2022. Net sales for the 13 week 2nd quarter decreased 3.2% to $292,400,000 compared to net sales of $302,000,000 for the prior year 13 week Q2. Comparable store sales for the quarter decreased 3.3% in comparison to the same 13 week period in the prior year and our online sales decreased 5.6 percent to $43,600,000 Year to date net sales decreased 5.9 percent to $575,300,000 for the 26 week fiscal period ended July 29, 2023, compared to net sales of $611,000,000 for the prior year 26 week fiscal period into July 30, 2022.

Speaker 1

Comparable store sales for the year to date period were down 6.3% in comparison to the same 26 week period in the prior year and our online sales were down 5.6 percent to $94,900,000 For the quarter, UPTs decreased approximately 2%, the average unit retail increased approximately 2% and the average transaction value increased about 0.5%. Year to date UPTs increased slightly, the average unit retail increased approximately 0.5% and the average transaction value increased approximately 1 gross margin for the quarter was 47.3%, down 90 basis points from 48.2% in the Q2 of 2022. The current quarter decline was the result of 60 basis points of deleveraged buying distribution and occupancy expense along with a 30 basis point decline in merchandise margins. Year to date gross margin was 47.2%, down 150 basis points from 48.7 percent in the prior year. The year to date decline was due to 100 basis points of deleverage buying distribution expense along with a 50 basis point reduction in merchandise margins.

Speaker 1

Selling, general and administrative expenses for the quarter 27.9 percent of net sales compared to 26.4% for the Q2 last year. Year to date SG and A was 28% of net sales compared to 26% for the same period last year. The 2nd quarter increase was due to a 60 basis point increase in store labor related expenses, a 25 basis point increase in G and A salaries, a 25 basis point increase in equity compensation expense and a 25 basis point increase in marketing spend along with increases across several other SG and A expense categories, which had a combined 50 basis point impact. These increases were also partially offset 35 basis point decrease in incentive compensation accruals. Our operating margin for the quarter was 19.4% compared to 21.8% for the Q2 of fiscal 2022 and for the year to date period, our operating margin was 19.2% compared to 22.7% for the same period last year.

Speaker 1

Income tax expense as a percentage of pretax net income for both the current and prior year fiscal quarter was 24.5 percent, bringing 2nd quarter net income to $45,600,000 for fiscal 2023 Compared to $50,100,000 for fiscal 2022. 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 $88,600,000 for fiscal 2023 Compared to $105,400,000 for fiscal 2022. Our press release also included a balance sheet as of July 29, 2023, which included the following: inventory of $136,100,000 which was up 5.9 percent from 128,500,000 as of July 30, 2022 and also $322,900,000 in total cash and investments, we ended the quarter with $119,300,000 in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $8,600,000 and depreciation expense was $5,000,000 For the year to date period, capital expenditures were $17,900,000 And depreciation expense was $9,900,000 Year to date capital spending is broken down as follows: $17,200,000 for new store construction, store remodels and technology upgrades and $700,000 for capital spending at the corporate headquarters and distribution center. During the quarter, we completed 6 full remodels, 4 of which were relocations into new outdoor shopping centers And we also opened 2 new stores earlier this month in Nampa, Idaho and Poplar Bluff, Missouri, which brings our year to date accounts to 4 new stores, 10 full remodels and 3 store closures.

Speaker 1

For the remainder of this year, we plan on opening 5 additional new stores And completing 8 more full remodeling projects. Buckle ended the quarter with 4 40 retail stores in 42 states Compared with 4 41 stores in 42 states at the end of the Q2 last year. And now I'll turn it over to Adam Akerson, Vice President of Finance. Thanks, Tom. Women's merchandise sales

Speaker 2

for the quarter were down about 6% against the prior year and represented approximately 43.5% of sales compared to 4.5% in the prior year, average denim price points increased from $77.80 in the Q2 of fiscal 'twenty two $79.10 in the Q2 of fiscal 'twenty three, while overall average women's price points increased about 2.5% from $41.85 to $42.85 Going up against the strongest Q2 on record, we were pleased with the strong sell throughs in our spring assortment ended the quarter with comfortable inventory levels across all categories. The women's denim business saw particular strength in our private label brands while being off in our brand styles was largely driven by planned inventory decreases. Our women's top business was highlighted by the performance of graphics, sheer fabrics and product with shine. And while we came into the quarter with plans to chase product in our tops categories, we were unable to source enough newness to drive growth. The women's footwear business saw a nice response to our selection of casual styles, but the open toe and sandals business was impacted by the delayed spring temperatures.

Speaker 2

On the men's side, merchandise sales for the quarter were down about 1% against the prior year, representing approximately 56.5% of total sales Compared to 55.5 percent in the prior year, average denim price points increased from $87.60 in the Q2 of fiscal 'twenty 2 to $89.50 in the Q2 of fiscal 'twenty 3. For the quarter, overall average men's price points increased approximately 4% From $47.30 to $49.25 Growth in the men's denim category continued to lead the way With a nice mix of growth in both private and branded styles. For tops, we are excited about the performance in a wide variety of looks and styles of our short sleeve button ups. Footwear remains challenging with both difficult comparisons and a difficult competitive landscape, but we continue to identify other accessories have resulted in nice add on business. We feel good about our overall inventory positioning as we enter the back to school and fall selling season.

Speaker 2

On a combined basis, accessory sales for the quarter were up approximately 3.5% against the prior year, while footwear sales were down about 13.5%. These two categories accounted for approximately 11.5% and 7.5%, respectively, of 2nd quarter net sales, which compares to 11% 8.5% for each in the Q2 of fiscal 'twenty 2. For the quarter, average accessory price points were up approximately 7.5% And average footwear price points were up about 9.5%. We are encouraged by the performance in our youth business, seeing particular strength as we entered the back to school selling season, ending the quarter with sales up 5% year over year. For the quarter denim accounted for approximately 33% of sales and tops accounted for approximately 30%, which compares to 32% 30.5% for each in the Q2 of fiscal 2022.

Speaker 2

We continue driving growth in our private brands with private label representing 41% of sales Versus 40% in the Q2 of fiscal 'twenty 2. And with that, we welcome your questions.

Operator

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 your firm affiliation. First person with their hand raised is Maurizio Serna. Rich, so you should be now be allowed to talk now.

Speaker 3

Hi. Yes. Can you hear me now?

Operator

Yes, yes we can.

Speaker 3

Yes, good morning. Mauricio Serna from UBS. Thanks for taking my questions and congrats on the results. I guess, just wanted to ask if you could elaborate a little bit more on what were the drivers behind the merchandise margin contraction, 30 basis points? Is this related to Cost pressure, inflation, how do you see that evolving on the back half of the year?

Speaker 3

And then secondly, you mentioned something on the women's side being affected given that you were unable to source enough newness, how much if you could maybe give us an idea of how much newness usually represents of Your business or how relevant is that to your to the overall business growth? Thank you.

Speaker 4

Okay. Thank you for your question. I think the margin decrease was largely a part of the Opportunity we had last year with the footwear where we had substantial volume and a better margin And that probably had the biggest effect on the margin part of our business. We're Still very strong in most of those categories. On the Ladies side, with the weather being difficult in the first several months of not truly getting summer weather, so to speak.

Speaker 4

We We're not getting the early sell throughs on certain fashion products. So, we did not pursue Going back to that and focused on our back to school season. And so that's kind of why we didn't Go aggressively with more new styles on the Gal side.

Operator

There are no further questions in the queue. Sorry, we have Mauricio again. Mauricio, you should be able to unmute now.

Speaker 3

Thank you. Thanks so much for the follow-up. I guess, like, just maybe if you could elaborate a little bit more on you mentioned that You feel very good about your inventory for back to school. I mean, what are your thoughts on like how the season has How the back to school season has played out? And maybe if I think about the inventory composition, I think it's still up 6% year over year.

Speaker 3

Q2, like how do you feel about that, like in terms of the composition of it and if you're what makes you feel so comfortable about it Heading into the second half of the year.

Speaker 4

Well, a little historical data probably on our inventory is the Yes. In 2019, our inventory was probably in the $135,000,000 ballpark, if I remember right. And then it was down in 2021 quite a bit. Last year, it increased to more of a normal level. And so, our business has grown substantially since that time period.

Speaker 4

We have most of our receipts are new and good response from our stores and our guests On the new selection, so we feel very comfortable with the selection at this point.

Operator

Okay, no further questions in the queue. If you do have a question, please raise your hand. You find the raise hand feature at the bottom of your application. Okay. There are no further questions.

Operator

So I'll now turn the call back over to Buckle for any closing remarks. Thank you.

Speaker 2

Thank you, everybody, for your

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Buckle Q2 2024
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