Buckle Inc

NYSE:BKE

Earnings Call Analysis

Net Sales and Earnings Decline Amid Rising Costs

In the second quarter ending August 3, 2024, Buckle reported a decrease in net income to $39.3 million, down from $45.6 million the previous year. Net sales declined by 3.4%, with a notable 15.2% drop in online sales. SG&A expenses rose to 29.8% of net sales due to increased store payroll and digital investments. Despite the sales downturn, average unit retail prices increased slightly. Buckle plans to open five more stores this year, although overall store count remains consistent with 2023.

A Challenging Second Quarter

Buckle reported a net income of $39.3 million for the second quarter of fiscal 2024, translating to $0.78 per diluted share. This marks a decline from $45.6 million, or $0.92 per share, in the same period last year. Year-to-date, their net income stands at $74.1 million, down from $88.6 million for the comparable period in 2023. Net sales also fell by 3.4% to $282.4 million, with year-to-date sales decreasing by 5.3% to $544.9 million. Comparable store sales were down significantly, showing a decline of 6.6% for the quarter and 7.7% year-to-date.

Sales Breakdown and Performance

Sales performance varied within product categories. Women's merchandise sales dropped by approximately 3% year-over-year, while men's sales decreased by about 3.5%. Notably, accessories and footwear categories saw declines of 4% and 27%, respectively. Despite this, denim sales were more resilient than others, with average price points rising slightly.

Profitability Metrics Under Pressure

Buckle's gross margin for the quarter was reported at 46.9%, down 40 basis points from the previous year due to increased occupancy and distribution costs, partially offset by better merchandise margins. SG&A expenses increased to 29.8% of net sales, up from 27.9%, driven largely by wage inflation and increases in store payroll. This culminated in an operating margin of 17.1%, a notable contraction from 19.4% last year.

E-Commerce Challenges and Initiatives

Buckle's online sales faced a more severe 15.2% drop to $37 million. In response, the company has focused on improving its e-commerce platform, enhancing site navigation and marketing strategies to boost traffic. They reassigned their digital marketing budget, balancing guest acquisition with retention strategies, which began showing positive results towards the end of the quarter.

Continued Expansion Plans

The company opened two new stores during the quarter and plans to add five more by year-end. They aim to complete six additional store remodels, maintaining a total of 440 retail locations across 42 states. Their capital expenditures for the quarter were reported at $11.5 million, primarily allocated for store remodels and technology upgrades.

Looking Forward

While Buckle did not provide specific future sales or earnings guidance, they did outline their commitment to enhancing operational efficiency and customer experience through strategic investments, particularly in the digital landscape. As market conditions fluctuate, maintaining a keen focus on cost management and effective marketing will be crucial for the company's recovery and growth trajectory.

Earnings Call Transcript 2025-Q2

[Operator]

Good morning, and thank you for standing by. Welcome to Buckle's Second Quarter Earnings Release Webcast. [Operator Instructions] 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 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 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 Heacock.

[Thomas Heacock, executive]

Good morning, and thanks for joining us this morning. Our August 23, 2024 press release reported that net income for the 13-week second quarter, which ended August 3, 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 13-week second quarter, which ended July 29, 2023.

Year-to-date net income for the 26-week period ended August 3, 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. And 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.

Selling, 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 and 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 point decrease in incentive compensation accruals and a 25 basis point 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. And 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 pretax 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 pretax 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 the 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 2 new stores, completed 7 full remodels, one of which was a relocation into a new outdoor shopping center and closed 2 stores, which brings our year-to-date count to 2 new stores, 12 full remodels and 6 store closures. For the remainder of the year, we plan on opening 5 additional new stores and completing 6 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.

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

[Adam Akerson, executive]

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 13-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 13-week quarter were down approximately 4% against the prior year 13-week comparable period, while footwear sales were down about 27%. These 2 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 continue 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 top categories were down about 7%. Our men's short-sleeve 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.

[Operator]

[Operator Instructions] Our first question is from Mauricio Serna.

[Mauricio Serna Vega, analyst]

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

[Thomas Heacock, executive]

Mauricio. I'll let Dennis take the merchandise margin question first, and then we'll jump into the [indiscernible] question.

[Dennis Nelson, executive]

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.

[Thomas Heacock, executive]

And then on the e-commerce initiatives, I mean, that's been a big priority for this year, knowing that there was a gap between in-store performance and 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 check out product display and groupings.

The next iteration 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, 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 challenged to the site. During the quarter, we really reviewed our digital spend, marketing spend as it relates to driving drop to e-com, a lot of it prior to probably mid-July was focused on guest acquisition, we really pivoted to and reallocated our budget in 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]

There are no further questions in the queue. [Operator Instructions] It looks like Mauricio has another question.

[Mauricio Serna Vega, analyst]

Great. Yes, I just had another follow-up. Thank you, first of all, for answering the previous questions. Maybe on operating expenses. 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 like total operating excellence were up 3.2%. Some increases involved in selling and general administrative this time around. Just curious if you could elaborate a little bit more on what is driving that increase given that sales are still down and any initiatives that the company is doing there to manage them on those expenses, that will be super helpful.

[Thomas Heacock, executive]

Yes. Thank you, Mauricio. So I mean I think if you look at -- we look at it kind of in 2 different buckets. We look at the selling and the G&A. I think the G&A was pretty consistent Q1 to Q2. I mean the increases year-over-year there are really the same things in 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 of 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 as though 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 2 big -- 1 biggest driver there -- and then the other on the selling side, like we called out was the third-party relationship to help with our e-commerce.

[Operator]

Our next question is from Alan.

[Alan Glenn, analyst]

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

[Dennis Nelson, executive]

Yes.

[Alan Glenn, analyst]

With the 5 stores that your new stores you're opening, 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, executive]

We have 1 new store we just opened this week in California that is an unserved market for us. The 4 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 it 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 are on those.

[Operator]

There are no further questions in queue. [Operator Instructions] There are no further questions. I can go ahead and turn it back over to the Buckle for any closing remarks.

[Thomas Heacock, executive]

Well, 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.