May 21, 2015
Executives
Dennis Nelson - President and CEO Karen Rhoads - SVP, Finance and CFO Pat Whisler - SVP, Women's Merchandising Bob Carlberg - SVP, Men's Merchandising Kyle Hanson - VP, General Counsel and Corporate Secretary Tom Heacock - VP, Finance, Treasurer, and Corporate Controller
Analysts
Jessica Schmidt - KeyBanc Capital Markets Paul Alexander - BB&T Capital Markets Lee Giordano - Sterne Agee Simeon Siegel - Nomura Securities Liz Pierce - Brean Capital
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Earnings Release Conference Call.
At this time, all lines are in a listen-only mode. And later, we will conduct a question-and-answer session, and instructions will be given at that time.
[Operator Instructions] And as a reminder, this conference is being recorded. Members of Buckle's management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and CFO; Pat Whisler, Senior Vice President of Women's Merchandising; Bob Carlberg, Senior Vice President of Men's Merchandising; Kyle Hanson, Vice President, General Counsel and Corporate Secretary; and Tom Heacock, Vice President of Finance, Treasurer and Corporate Controller.
As they review the operating results for the first quarter, which ended May 2nd, 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 those projected results expressed or implied there within are not 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 written expressed consent.
Any unauthorized reproductions or recordings of these calls should not be relied on as the information maybe inaccurate. And now, I would like to turn the conference over to our host, Ms.
Karen Rhoads. Please go ahead.
Karen Rhoads
Thank you. And good morning everyone, thank you for joining the call this morning.
Our May 21, 2015 press release reported that net income for the 13-week first quarter, that ended May 2, 2015, was $33.6 million, or $0.70 per share on a diluted basis. Compared to net income, a $37.3 million, or $0.78 per share on a diluted basis for the prior year 13-week first quarter that ended May 3, 2014.
Our net sales for the 13-week first quarter decreased just one-tenth of a percent, to $271.3 million compared to $271.7 million for the prior year 13-week first quarter. Comparable store sales for the quarter were down 2.2% in comparison to the same 13-week period in the prior year, and our online sales increased 12.9%, to $24.2 million.
Gross margin for the quarter was 41.9%, down approximately 120 basis points from 43.1% for the first quarter last year. The decrease was driven primarily by de-leveraged occupancy, buying, and distribution expenses resulting from the comparable store sales decline.
Additionally, our merchandise margins for the quarter were down 25 basis points. Selling expense for the quarter was 18.1% in net sales compared to 17.6% of net sales for the first quarter of fiscal 2014.
Increases in store payroll expense, online fulfillment and marketing expenses, as well as certain other selling expenses were partially offset by a reduction of the percentage of net sales in expense related to the incentive bonus accrual. General and administrative expenses for the quarter were 4.3% of net sales compared to 3.7% of net sales for the first quarter of fiscal 2014, with increases as a percentage of net sales across several expense categories as a result of the comparable store sales decline for the quarter.
Our operating margin for the quarter was 19.5% compared to 21.8% for the first quarter of fiscal 2014. Other income for the quarter was $736,000 compared to $345,000 for the first quarter of fiscal 2014.
Income tax expense as a percentage of pretax net income was 37.3% for the first quarter of both fiscal 2015 and fiscal 2014, bringing first quarter net income to $33.6 million for fiscal 2015, versus $37.3 million for fiscal 2014. Our press release also included a balance sheet as of May 2, 2015, which included the following: inventory of $129.6 million, which was up approximately 8.5% from inventory of $119.2 million at the end of the first quarter of fiscal 2014.
And total cash in investments of $202.5 million, which compares to $203.3 million at the end of fiscal 2014, and $237.8 million at the same time a year ago. As of the end of the quarter, inventory on a comparable store basis was up approximately 5% compared to the same time a year ago.
And total markdown inventory was up on an absolute dollar basis, but was down as a percentage of total inventory. We also ended the quarter with $176.2 million in fixed assets, net of accumulated depreciation.
Our capital expenditures for the quarter were $11.3 million, and depreciation expense was $7.7 million. Capital spending for the quarter is broken down as follows: $7 million for new store construction, store remodels, and store technology upgrades, and $4.3 million for capital spending at the corporate headquarters and distribution center.
We expect our fiscal 2015 capital expenditures to be in the range of $35 million to $39 million, which includes primarily new store and store remodeling projects, IT investments, and the completion of a new office building in Kearney, Nebraska, which some of our teammates moved into during April. For the quarter, UPTs decreased approximately one-half of a percent.
The average transaction value increased approximately 4%, and the average unit retail increased approximately 4.5%. Buckle ended the quarter with 463 retail stores in 44 states compared to 450 stores in 43 states at the end of the first quarter of fiscal 2014.
Additionally, our total square footage was 2.345 million square feet as of the end of the quarter compared to 2.266 million square feet at the same time a year ago. And at this time, I'd like to turn the call over to Tom Heacock, our Vice President of Finance, Treasurer, and Corporate Controller.
Tom Heacock
Good morning, and thanks for being with us this morning. I'd like to start by highlighting the performance from our various merchandise categories for the quarter.
Men's merchandise sales for the quarter were up approximately 6% with strong categories including denim and casual bottoms, woven and knit shirts, shorts, and accessories. Average denim price points increased from $92.75 in the first quarter of fiscal 2014 to $94.15 in the first quarter of fiscal 2015.
For the quarter, our men's business was approximately 43.5% of net sales compared to 41% last year, and our average men's price points increased slightly from $54.85 to $55.05. Women's merchandise sales for the quarter were down approximately 4%; with strong categories included woven tops, and footwear.
Our average denim price points decreased from $100.15 in the first quarter of fiscal 2014 to $97.85 in the first quarter of fiscal 2015. For the quarter, our women's business was approximately 56.5% of sales compared to 59% last year, and our average women's price points increased to approximately 7.5% from $47.40 to $51.05.
For the quarter, combined accessories sales were up approximately 2%, and combined footwear sales were up approximately 1.5%. These two categories accounted for approximately 8% and 6.5% respectively of first quarter net sales, which compares to 7.5% and 6% for each in the first quarter of last year.
Average accessory price points were up approximately 14.5%, and average footwear price points were up approximately 6%. For the quarter, denim accounted for approximately 42% of sales, and tops accounted for approximately 29.5%, which compares to 43.5% and 28.5% for each in the first quarter of last year.
Our private label business was up slightly as a percentage of sales for the quarter, and represent approximately one-third of sales. During the quarter, we opened three new stores, and completed five substantial remodels.
As of the end of the quarter, 372 of our 463 stores were on newest format. For all of fiscal 2015, we still anticipate opening nine new stores in total, including one planned for back-to-school, and five planned for holiday, and we also anticipate completing 14 full remodels in total during the year, including one store that have already moved into its remodeled space in May, five planned for back-to-school, and three for holiday.
And with that, we'll welcome your questions. Operator, we're ready for questions whenever you are.
Operator
My apologies, my mute button was still on. [Operator Instructions] And our first question comes from the line of Ed Yruma from KeyBanc Capital Markets.
Please go ahead.
Jessica Schmidt
Hi, this is Jessica Schmidt on for Ed, thanks for taking my question. My first one, can you just talk a little bit more about the inventory expansion this quarter?
I guess was this planned? Was there some impact from the West Coast port delays?
And how do you feel about the quality of the inventory?
Dennis Nelson
Okay, good morning, Jessica. This is Dennis.
The inventory we built up, some of the men's inventory to last year, we got a little short on shorts for the summer months, and so we wanted to have a better presentation there, as well as in the accessories, and some of the top categories. So for the most part it was planned.
There is a little bit of change to the inventory from the port strike that had a small effect. But we feel the quality of the inventory is very good, and looking forward to second quarter.
Jessica Schmidt
Okay, great. And then, can you discuss some of the trends you're seeing in denim, particularly in women's?
I know the category has been tough, but just wondering if you're seeing any encouraging signs?
Dennis Nelson
Pat, do you want to go first with that?
Pat Whisler
Sure. Well, we're seeing some nice diversity in the trends where -- that were more dark and clean earlier on, and now we're seeing some -- a mix of light to dark, some destruction in the finishes; just good fresh look.
And we're feeling pretty good about what that means to the category.
Dennis Nelson
I might add also Jessica that we've added a couple of vendors, and we'll have probably a wider selection of brands, as well as our private label, along with all the styles in legs silhouettes for back-to-school.
Jessica Schmidt
Great, thank you.
Dennis Nelson
You're welcome.
Operator
And our next question comes from the line of Paul Alexander from BB&T Capital Markets. Please go ahead.
Paul Alexander
Hi. Thanks for the question.
Guys, can you talk a little bit more about the gross margin decline? What was the driver of the decline in merchandise margins?
And then, did anything happen to change the leverage point for buying in occupancy? What else is going on in that line?
Because it seems like it was a much more volatile change in gross margin than we've seen from you guys in a very long time?
Karen Rhoads
I think on gross margin, the de-leverage; we've always said that we need low to mid single-digit comp to provide leverage in the cost of goods sold section on the buying and distribution and occupancy cost in comps were negative for the quarter. But when we give that number it's actually kind of an annualized number.
And in the first half of the year when the absolute dollars of sales are smaller, that leverage point is actually a little bit higher than it would be in the back half, when the absolute dollars are greater, then the comp required for leverage isn't quite as high. So when we give that number on an annualized basis, and not really a quarter-by-quarter basis, if that makes sense.
And then, Dennis, and just for the audience, Mr. Nelson is calling in remotely, so I'll maybe pass that question regarding the merchandise margin over to you, Dennis.
Dennis Nelson
Well, we've just been running a very high margin. As I mentioned, we feel good about the quality of our inventory, and feel the team has done well, and there's -- we see it more of a hiccup as than any kind of a trend.
Paul Alexander
Thank you. Just one follow-up; can you talk about the progress in ecommerce growth.
It's the second quarter, a better growth there than recently. Did you continue to invest more in email, or imaging -- imagery, what else is going on there, or is this related to more clearance through the Web site?
Thank you.
Dennis Nelson
Kyle, do you want to take that one?
Kyle Hanson
Sure, this is Kyle Hanson, and I work with the ecommerce team. One of the things that we have been doing is just testing some different marketing programs and marketing strategies, as well as what you mentioned and -- I'd mentioned on the last call, with some just updated imagery on the Web site.
And we're happy with the progress there.
Operator
And we have a question from the line of Lee Giordano from Sterne Agee. Please go ahead.
Lee Giordano
Thanks. Good morning, guys.
Can you talk some more about sales performance differences by region and if you think weather might have been a negative factor at all in the quarter? And then, secondly, any update on the kid's effort?
Thanks.
Dennis Nelson
Okay. For the most part, I would say on some of the Northern stores that had -- normally gets a good flow of traffic from Canada, that we've seen a little slowness there.
And select markets, maybe in North Dakota a little bit of a hiccup on a little bit of the oil slowness. But overall, I'd say it's pretty much by store, and the quality of what the manger and the team is doing on that.
And the kids, we take a slower approach in the second quarter, being careful on what we're doing with inventory, but we're ramping up for back-to-school with more storage. Bob, do you want to mention, and Pat, on the kids level?
Bob Carlberg
For the men's business, we're going to go in a small way to all stores with the youth, and in 300 stores there'll be a good inventory. And so far their response has been very good, although, still a small part of the business.
Pat Whisler
Yes. I would also echo what Bob has said on the men's side.
A little bit quieter into the second quarter, then we take a stronger position for third quarter, but we will be in all stores in a small way for little girls as well.
Operator
[Operator Instructions] We do have a question from Simeon Siegel from Nomura Securities. Your line is open.
Simeon Siegel
Thanks. Hi guys, good morning.
Dennis Nelson
Good morning.
Simeon Siegel
Karen, you've done a great job at keeping SG&A relatively constant with sales historically. Clearly, sales were lighter, to your earlier point, which may just be the answer, but can you talk to the de-leverage on the expense line this quarter?
And if sales do remain challenged, is there any room to pull back on those expenses, or would you expect more pressure there? And then, just as a corollary, you de-levered last quarter as well.
So both of these came at the same time that ecommerce has actually been gaining traction -- to Paul's point. Are you doing anything differently there online to maybe drive that growth?
Could that help explain some of the de-leverage initiatives? Thanks.
Karen Rhoads
A little bit of a de-leverage would be some of the growth in various departments building up the infrastructure to support future growth. So we do have areas there that are making sure that we are prepared internally as we continue to grow, kind of this.
As we mentioned too, sales, salaries at the store level would have been one of the categories that were up, and obviously that's one that with stronger sales we're able to gain a little bit of leverage. And the district leaders continue to work with our stores on being smart about their scheduling and really have a focus on that.
So they do pay great attention to that. A little bit of it in the G&A section.
I think that there would be areas that we could continue to look at that to see if there is some areas for improvements and pulling back, just as you had mentioned if sales would continue to be a little bit softer. Does that answer your question?
Okay.
Dennis Nelson
Simeon, also I might add that the merchandise team is continually being involved with the online team as far as the presentation of the product online, and reviewing photo shots, and what might make it more appealing online or show the quality of the product. So, I think that had some small benefit as well to the online sales.
Simeon Siegel
Perfect. Thanks a lot, guys.
Dennis Nelson
Yes.
Operator
And we do have a question from Liz Pierce from Brean Capital. Please go ahead.
Liz Pierce
Thanks, good morning. Just following up on that question, Dennis, is this the same team that's buying for both online and the stores?
Dennis Nelson
Yes.
Liz Pierce
Okay. And then, isn't Q1 when you guys started to incorporate, in the comp, the online?
Is that right?
Dennis Neilson
Correct.
Karen Rhoads
That is correct.
Liz Pierce
So, would we look at last year's quarter of negative 0.9 -- if you -- I mean, how do we put this on an apples-to-apples basis, is my question?
Dennis Nelson
Karen, do you want to take that one?
Karen Rhoads
On the comparable store sales list?
Liz Pierce
Yes. And so, if we took out the online for this year to compare it to last year or add last year -- add online in.
I'm just kind of curious.
Karen Rhoads
Yes. We're not going to do that anymore because we've combined them into one number.
So, we're not going to give a breakdown of comps excluding internet and including. I think we made that change at the start of the fiscal year, and I think we'll be consistent with that going forward.
Liz Pierce
Right. So I was just curious what last year -- so you're not going to -- okay.
You're not going to disclose what last year's would have been on an apples-to-apples basis, that was my question.
Dennis Nelson
We do have a lot, there's 12% increase or 12 plus increase this year on the online.
Karen Rhoads
Right.
Dennis Nelson
Correct, yes.
Liz Pierce
Okay. And then, Dennis, in terms of adding more brands in private label -- to your comment a minute ago about denim, are other things coming out, other brands, other products?
How are you going to make the space for -- in the store? Because one of the things you guys do so well is kind of create that excitement around outfits and all the different styles.
So I was just curious how you're going to do that.
Dennis Nelson
I think on certain brands, there might be less selection than before, we'll still be a great selection and just fine-tuning that and adding some new brands, some new styles and fits that will complement what we have going on. And so I think our total number like I am thinking on the girl side at the moment will not necessarily be much different in total inventory, but it will have just even a better variety of product and fine-tuning some styles on our mix that will be -- I think will be very successful for us.
Liz Pierce
Okay, because especially if you're adding both product for girls -- little girls and little boys. So is it just that we'll see less breadth or less depth or a combination?
Dennis Nelson
It will be a less depth on certain brands or certain fits from previous.
Liz Pierce
And I presume that, with -- the online business is growing, maybe some of that can be made up online? Will those sizes be available?
Dennis Nelson
Yes.
Liz Pierce
Okay. And then, Karen, what do you expect ending inventory to be for Q2?
Karen Rhoads
Actually, Liz, I will pass that question back over to Dennis, so I am sorry.
Liz Pierce
Thank you.
Dennis Nelson
Well, we really don't forecast too much, but I would guess that it would be at the level we are at now, maybe slightly less, somewhere in that area.
Liz Pierce
Okay. All right, great.
Best of luck. Thanks, guys.
Dennis Nelson
Yes. Thank you.
Karen Rhoads
Thank you.
Operator
[Operator Instructions] I do have a question from Paul Alexander from BB&T Capital Markets. Please go ahead.
Paul Alexander
Hi, guys. Thanks.
Just one follow-up question on promotions, was there any increase in promotions this quarter? And then, second, I know that there was a shift in the timing of the Spring Break promotion.
What was the impact of that shift on the quarter? Thank you.
Dennis Nelson
Bob, you want to discuss the promotions?
Bob Carlberg
Yes, the Spring Break promotion moved out almost a month due to the port delay, with the Easter shift, I don't know we could gets you an exact figure of the change in there, but it did move a month. And then we did start, this was in Q1, but one new promotion that we did is starting and going right now is the Fox [ph] promotion, but otherwise we are basically annualizing all the promotions and not adding.
Paul Alexander
Thank you.
Operator
And there are no additional questions at this time.
Karen Rhoads
With no additional questions, we would like to thank everyone again for joining us on the call today. And this will conclude our call.
Have a great day.
Operator
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