Buckle Inc

NYSE:BKE

Earnings Call Transcript 2022-Q3

[Operator]

Welcome to the Third Quarter Earnings Release Webcast. [Operator Instructions] Members of Buckle's management on the call today are Dennis Nelson, President and CEO; and 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 for the third quarter, which ended October 29, 2022, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe harbor statements. 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 beyond -- 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 discementation of transcripts or audio recordings of the company's quarterly conference calls without its express written consent. Any unauthorized reproductions or recordings of the call should not be relied upon as the information maybe inaccurate. And as a reminder, today's webcast is being recorded.

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

[Tom Heacock]

Good morning, and thanks for joining us today. Our November 18, 2022 press release reported that net income for the 13-week third quarter ended October 29, 2022 was $61.4 million or $1.24 per share on a diluted basis compared to net income of $62.2 million or $1.26 per share on a diluted basis for the prior year 13-week third quarter with October 30, 2021.

Year-to-date, net income for the 39-week period ended October 29, 2022 was $166.8 million or $3.37 per share on a diluted basis which compares to net income of $170.9 million or $3.46 per share on a diluted basis for the prior year 39-week period ended October 30, 2021.

Net sales for the 13-week third quarter increased 4% to $332.3 million compared to net sales of $319.4 million for the prior year 13-week third quarter. Comparable store sales for the quarter increased 3% in comparison to the same 13-week period in the prior year, and our online sales increased 8.8% to $55 million.

Year-to-date net sales increased 3.3% to $943.4 million for the 39-week fiscal period ended October 29, 2022, compared to net sales of $913.7 million for the prior year 39-week period ended October 30, 2021. Comparable store sales for the year-to-date period were up 2.8% in comparison to the same 39-week period in the prior year, and our online sales increased 5.3% to $155.6 million.

For the quarter, UPTs decreased approximately 0.5%, the average unit retail increased approximately 6% and the average transaction value increased approximately 5.5%. Year-to-date, UPTs decreased approximately 0.5%, the average unit retail increased approximately 3.5%, and the average transaction value increased approximately 3%.

Gross margin for the quarter was 49.8%, down 60 basis points from 50.4% in the third quarter of 2021. Year-to-date gross margin was 49.1%, down 20 basis points from 49.3% for the same period last year.

Merchandise margins were down about 75 basis points for the quarter and down 35 basis points for the year-to-date period. Selling, general and administrative expenses for the quarter were 25.9% of sales, compared to 24.7% for the third quarter of 2021. Year-to-date, SG&A was 26% of net sales compared to 24.6% for the same period last year.

The third quarter increase was due to a 90 basis point increase in store labor-related expenses, in addition to increases across several other SG&A expense categories, which had a 90 basis point impact and were partially offset by a 60 basis point reduction in incentive compensation accruals.

Our operating margin for the quarter was 23.9%, compared to 25.7% for the third quarter of fiscal 2021. And for the year-to-date period, our operating margin was 23.1%, compared to 24.7% 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 $61.4 million for fiscal 2022, compared to $62.2 million for fiscal 2021.

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 $166. 8 million for fiscal 2022, compared to $170.9 million for fiscal 2021.

Our press release also included a balance sheet as of October 29, 2022, which included the following: inventory of $152.3 million and total cash on investments of $344.7 million.

Third quarter inventory comparisons for the last several years included $100.6 million at the end of Q3 2021, $118.7 million in Q3 2020 and $138.9 million in Q3 2019. We ended the quarter with $109.6 million in fixed assets net of accumulated depreciation.

Our capital expenditures for the quarter were $7.5 million and depreciation expense was $4.4 million. For the year-to-date period, capital expenditures were $22.4 million and depreciation expense was $13.6 million.

Year-to-date capital spending is broken down as follows: $22 million for new store construction, store remodels and technology upgrades and $0.4 million for capital spending at the corporate headquarters and distribution center.

During the quarter, we opened one new store, completed three full remodels, two of which are relocations into new outdoor shopping centers and closed one store. This brings our year-to-date totals to three new stores, 16 full remodels and two store closures.

For the remainder of the year, we anticipate completing eight additional full remodel projects and opening one additional new store. Based on current store plans, we expect our capital expenditures to be in the range of $26 million to $30 million for the year, which includes both planned store projects and IT investments.

Buckle ended the quarter with 441 retail stores in 42 states consistent with the store count as of the end of the third quarter last year.

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

[Adam Akerson, Vice President, Finance & Corporate Controller]

Thanks, Tom. Women's merchandise sales for the fiscal quarter were up slightly against the prior year fiscal quarter. For the quarter, our women's business was approximately 46.5% of sales compared to 48% in the prior year.

Average denim price points increased from 74.25% in the third quarter of fiscal 2021 to $78.55 in the third quarter of fiscal 2022, and overall average women's price points increased about 7% from $45.65 to $48.80.

On the men's side, merchandise sales for the fiscal quarter were up 6% against the prior year fiscal quarter, representing approximately 53.5% of total sales compared to 52% in the prior year. Average denim price points increased from $81.55 in the third quarter of fiscal 2021 to $87.25 in the third quarter of fiscal 2022. For the quarter, overall average men's price points increased approximately 5.5% from $49.15 to $51.80.

On a combined basis, accessory sales for the fiscal quarter were up approximately 15.5% against the prior year this quarter, while footwear sales were down about 17%. These two categories accounted for approximately 9.5% and 7.5%, respectively of third quarter net sales, which compares to 8.5% and 9.5% for each in the third quarter of fiscal 2021.

For the quarter, average accessory price points were up approximately 10.5%, average footwear price points were up about 2.5%. For the quarter, denim accounted for approximately 42.5% of sales and tops accounted for approximately 30.5%, which compares to 41.5% and 32% for each in the third quarter of fiscal 2021.

We continue to be encouraged by the guest response to our youth business. For the second consecutive quarter, youth was our fastest-growing category with approximately 26.5% year-over-year growth, representing about 4% of the total sales.

Overall, we continue to be pleased with the performance of both our men's and women's business with broad-based strength across most categories on top of record sales a year ago.

Categories of particular strength include denim, wovens, outerwear, and accessories, all of which greatly benefited from better inventory positioning compared to a year ago. Both teams have done a great job developing additional looks and lifestyles to expand the number of guests we can serve in our stores.

During the quarter, we continued to see strength in our expanded assortment of western-inspired styles. Our buying teams also continued building our private label business with private label representing 46% of total sales for the quarter compared to 44% in the third quarter of 2021. Our inventory continues to be clean and we are excited about our selection moving into the holiday season.

And with that, we welcome your questions.

[Operator]

Thank you. [Operator Instructions]

And we will hear from Steve Marotta with CL King & Associates. Steve, go ahead and unmute.

[Steve Marotta, CL King & Associates]

Thank you. I did not see the mute button. Thank you for pointing that out. You talked about inventory being clean. Can you try to define that a little bit from an inventory competition standpoint? Are you -- where you want to be with inventory, you wish you had a little bit less? I know it compares a little bit higher than 2019. Is that what the goal was? Can you just unpack that a little bit for us? Thank you.

[Dennis Nelson, President & Chief Executive Officer]

Sure, Steve. And I'd like to take a moment before we start and just thank all the Buckle leaders and teammates for an excellent third quarter. We appreciate their hard work. Yes, our inventory is up maybe 10% over 2019. 4.6% of that is in cost of units. And we also had like an increase of $4 million plus on the water in transit of the inventory. And we are comfortable with the -- last year, we had all our key denim vendors from Vietnam was not shipping product. We didn't have any receipts.

And so we have the benefit of them back in our inventory. As well as we've grown, as Adam reported, our private label has grown nicely, and we've expanded both of our men's and women's private brands' inventory. And their sales have been very good, and we expanded fits and styles and expanded size scales to meet that demand. So it's been kind of a change in vendors somewhat. But on our private label, we have to plan and bring that in where we can just expect the vendors to be able to ship at once.

So we feel good about the product and the 2019 inventory even if it's up -- our inventory over 2019 is up 10%. But over 2019, our sales this last quarter were in the almost 50% up from 2019. So I think that puts that in perspective a little bit. And over last year, the 50% of the G&L inventory being up, half of that was in denim and about 15% of that was in the average cost.

As I mentioned, the denim, we would be missing business if we had not made those changes. So we also brought in a product one to two months early because we had so much last year that came January, February that we wanted for holiday and did not have. And this year with the threat of the port strikes and just the unknown when you're planning out six, seven months, we were more comfortable bringing that in early and providing a great selection. All our stores have a nice selection of product instead of risk chasing goods. Hopefully, that answers that.

[Steve Marotta, CL King & Associates]

Very helpful. Thank you.

[Dennis Nelson, President & Chief Executive Officer]

Yes

[Operator]

[Operator Instructions] And we will now hear from Alan Glenn. And Alan, if you wouldn't mind letting us know what your -- affiliation you’re with please.

[Alan Glenn, Concord & Main Ltd]

I'm with Concord & Main Ltd. Thank you. My question is with the potential for a crippling rail strike over the next 30 days. Does that -- would that affect your supply chain and inventory deliveries?

[Dennis Nelson, President & Chief Executive Officer]

Good morning, Alan, thanks for the question. No, we do not do any of our freight on rail.

[Alan Glenn, Concord & Main Ltd]

Thank you.

[Dennis Nelson, President & Chief Executive Officer]

Yes.

[Operator]

[Operator Instructions] All right. Well, there are no further questions. So I’ll turn it back over to The Buckle team for any closing or additional remarks.

[Tom Heacock]

Well if there are no further questions. We thank you everyone for participating and hope everyone has a wonderful rest of the day. So thank you very much.

[Operator]

And again, that does conclude today’s webinar. We thank you all for your participation. Enjoy your holiday season. We’ll see you next quarter.