Aug 17, 2017
Executives
Dennis Nelson - President and Chief Executive Officer Tom Heacock - Vice President, Finance, Treasurer and Chief Financial Officer Kelli Molczyk - Vice President, Women’s Merchandising Bob Carlberg - Senior Vice President, Men’s Merchandising Kyle Hanson - Vice President, General Counsel and Corporate Secretary
Analysts
Julie Kim - Nomura Instinet Tiffany Kanaga - Deutsche Bank Carlton Getz - Winter Harbor Ujjval Dave - Ujjval Investments Steve Marotta - CLK & Associates Mark Harris - Harris & Associates Kyle Kavanaugh - Palisade Capital John Deysher - Pinnacle
Presentation
Operator
Ladies and gentlemen, thank you for standing by and welcome to the Buckle’s Second Quarter Earnings Release Call. At this time, all lines are in a listen-only mode.
[Operator Instructions] And as a reminder, today’s conference call is being recorded. Members of the Buckle’s management on the call today are Dennis Nelson, President and CEO; Tom Heacock, Vice President of Finance, Treasurer and CFO; Kelli Molczyk, Vice President of Women’s Merchandising; Bob Carlberg, Senior Vice President of Men’s Merchandising; and Kyle Hanson, Vice President, General Counsel and Corporate Secretary.
As they review the operating results for the second quarter which ended July 29, 2017, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement. All forward-looking statements made on the company involve material risks and uncertainties and are subject to change based on factors which maybe 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 dissemination of transcripts or audio recordings of the company’s quarterly conference calls without its express written consent.
Any unauthorized reproduction or recordings of the call should not be relied upon as the information maybe inaccurate. I would now like to turn the conference over to Mr.
Tom Heacock. Please go ahead.
Tom Heacock
Good morning and thanks for joining us this morning. Our August 17, 2017 press release reported that net income for the 13-week second quarter ended July 29, 2017 was $11.5 million or $0.24 per share on a diluted basis compared with net income of $15.5 million or $0.32 per share on a diluted basis for the prior-year 13-week second quarter which ended on July 30, 2016.
Year-to-date net income for the 26-week period ended July 29, 2017 was $27.8 million or 57% per share on a diluted basis compared with net income of $38.6 million or $0.80 per share on a diluted basis for the prior-year, 26-week-period ended July 30, 2016. Net sales for the 13 weeks second quarter decreased 7.8% to $195.7 million compared to net sales of $212.2 million for the prior year 13 weeks second quarter.
Comparable store sales for the quarter were down 7.7% in comparison to the same 13 week period in the prior year and online sales decreased 4.5% to $19.5 million. Year-to-date net sales decreased 10.5% to $407.9 million for the 26 week fiscal period ended July 29, 2017 compared to net sales of $455.7 million for the prior year 26 week fiscal period ended July 30, 2016.
Comparable store sales for the year-to-date period were down 10.3% in comparison to the same 26 week period in the prior year and online sales decreased 6% to $41.3 million. For the quarter, UPTs increased approximately 1.5%.
The average unit retail decreased approximately 6% and the average transaction value decreased approximately 5%. For the year-to-date period, UPTs increased approximately 2%, the average unit retail decreased approximately 6.5%, and the average transaction value decreased approximately 4.5%.
Gross margin for the quarter was 37.9%, up approximately 20 basis points from 37.7% for the second quarter last year. The increase was driven primarily by 100 basis point improvement in merchandise margin and by 100 basis point benefit as a result of the fiscal 2016 sunset of our old Primo card loyalty program under which rewards were recorded as the cost of goods sold at the time of redemption.
These benefits were partially offset by de-leveraged occupancy, buying, and distribution expenses resulting from the comparable store sales decline. For the year-to-date period, gross margin was 38.2%, down approximately 10 basis points from 38.3% for the same period last year.
The decrease was driven primarily by de-leveraged occupancy, buying, and distribution expenses resulting from the comparable store sales decline and were partially offset by a 90 basis point improvement in merchandise margins and 150 basis point benefit related the Primo card sunset. Selling expense for the quarter was 23.9% of net sales compared to 21.7% of net sales for the second quarter of fiscal 2016.
For the year-to-date period, selling expense was 22.9% of net sales compared to 20.5% of net sales for the same period in the prior year. For both the second quarter and the year-to-date period the increase in selling expense as a percentage of net sales was the result of increases in store payroll, online marketing and fulfillment, and certain other selling expenses.
General and administrative expenses for the quarter were 5.1% of net sales compared with 4.6% of net sales for the second quarter of fiscal 2016. For the year-to-date period, general and administrative expenses were 4.9% of net sales compared with 4.5% of net sales in the prior year.
For both the quarter and year-to-date period, the G&A increase is due to an increased professional and consulting fees. Our operating margin for the quarter was 8.9% compared to 11.4% for the second quarter of fiscal 2016.
For the year-to-date period, our operating margin was 10.4% compared with 13.3% for the same period last year. Other income for the quarter was $0.9 million compared with $0.6 million for the second quarter of fiscal 2016 and other income for the year-to-date period was $1.8 million compared to $1 million in the prior year.
Income tax expense as a percentage of pretax net income was 37.3% for the second quarter of both fiscal 2017 and fiscal 2016 bringing second quarter net income to $11.5 million for fiscal 2017 versus $15.5 million for fiscal 2016. Year-to-date income tax expense was also 37.3% for both fiscal 2017 and fiscal 2016 bringing year-to-date net income to $27.8 million for fiscal 2017 versus $38.6 million for fiscal 2016.
Our press release also included a balance sheet as of July 29, 2017 which included the following; inventory of $121.7 million which was down approximately 15.5% from inventory of $144.3 million at the end of the second quarter last year and total cash and investments of $262.1 million, which compares to $264.6 million at the end of fiscal 2016 and $234.9 million at the same time a year ago. As of the end of the quarter, inventory on a comparable store basis was down approximately 14.5% and total markdown inventory was up compared to the same time a year ago.
We ended the quarter with $159.8 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $3.3 million and depreciation expense was $7.9 million.
For the year-to-date period, capital expenditures were $7.2 million and depreciation expense was $15.8 million. Year-to-date capital spending is broken down as follows: $6.7 million for new store construction, store remodels, and store technology upgrades; and $0.5 million for capital spending at the corporate headquarters and distribution center.
During the quarter we opened one new store and completed five full remodels. Year-to-date, we have opened one new store and completed seven full remodels which concludes our full remodel projects for the year.
For the remainder of the year, we plan on one additional new store opening for holiday and also have plans to close a store in mid-September which will bring our count – our year-to-date count to six store closures. As a result, we now expect our fiscal 2017 capital expenditures to be in the range of $15 million to $20 million, which includes primarily a new store and store remodeling project and certain IT investments.
Buckle ended the quarter with 463 retail stores in 44 states compared with 470 stores in 44 states at the end of the second quarter last year. As of the end of the quarter 392 stores of our 463 stores were in our newest format.
Additionally, our total square footage was 2.373 million square feet as of the end of the second quarter compared with 2.397 million square feet at the same time a year ago. And now I would like to turn the call over to Kelli Molczyk, our Vice President of Women’s Merchandising.
Kelli Molczyk
Thanks Tom. Good morning everybody.
I would like to start by highlighting the performance of our women’s merchandise categories for the quarter. Women’s merchandise sales for the quarter were down approximately 13.5%.
Average denim price point decreased from $87 in the second quarter of fiscal 2016 to $81.25 in the second quarter of fiscal 2017. For the quarter our women’s business was approximately 49.5% of net sales compared to 51.5% last year and average women’s price point decreased approximately 6.5% from $43.40 to $40.50.
When these overall price points were down as a result of assortment in higher dollar branded products being off from a year ago in our denim and footwear categories. In regards to denim our total denim inventory as well as our inventory in markdown denim are down from a year ago.
In addition the inventory changes we are facing the shift of our existing inventory to more entry level price points. Entry level price points in denim ranging from around $40 to $70, increased as a percentage of our total denim assortment with our higher price branded mix at denim being down as the percentage of our total denim inventory close to 50%.
We continue to see nice turns on our higher price denim starting around $80 and we will have a bigger presence in that category moving into Q3 compared to the second quarter. Positive responses have been towards broadening our selection in different denim fits and bottom openings as well as offering unique details.
We have also expanded our selection and offering in our private label brands like Daytrip and Buckle Black. First of all where we continue to perform well is spring type product further into Q2 than a year ago.
We are seeing a nice response to footwear under $50 as well as better branded products in certain markets, with footwear as well as other fall categories of full length denim long sleeve knits, woven sweaters and outerwear. We strategically push back to earlier receipts of the traditional fall categories to a larger concentration in Q3 based on the continued shift in the buy now, wear now guest shopping pattern.
The new product delivering has been well received by our stores and guests and with even the early deliveries of our heavier fall product having a nice start as the guest recognizes and values the unique and different product mix. We are seeing through early back-to-school reads that they are willing to move away from that buy now, wear now shopping pattern when the product is special.
In relation, we continue to find success in our other sportswear private label brand offerings from Gilded Intent, Gimmicks and BKE Boutique. It’s important to also call out the nice quarter in our dresses, rompers and skirts with responses to one few statement outfits.
The test introduced on denim skirts, have also been well-received in this category through Q3. And with that, I will turn over to Bob Carlberg, our Senior Vice President of Men’s Merchandising to discuss the performance of our men’s merchandise category.
Bob Carlberg
Thanks, Kelli. Good morning, everybody.
Men’s merchandise sales for the quarter were down approximately 5.5%. Average denim price point decreased from $92.80 in the second quarter of fiscal 2016 to $87.55 in the second quarter of fiscal 2017.
For the quarter, our men’s business was approximately 50.5% of net sales compared to 48.5% last year and average men’s price point decreased approximately 5% from $50.25 to $47.85 and that will add little color to the numbers. Overall, men’s held up well in a continuing difficult environment.
Inventories are well in line and most of the dollar loss came from targeted lower retails. Denim overall has had a good response to the new brands, fabrics and the aforementioned retail.
We see denim price points to continue slightly down in Q3 as they have been, introduced these that continue to see expansion in our brands, Departwest and Outpost in all categories, with BKE continuing to do well. The fishing themes this spring and summer and screen print T-shirts have been good.
The button fronts have been in a down cycle for a few years, but new fashion prints and solids are starting to impact our overall business there. As Kelli mentioned, the two summer categories were better in Q2 as expected with our guests in the buy now, wear now mode.
As part of that trend, we moved sweaters and outerwear deliveries out to mid September to focus on lighter weight and easier to transition product during early Q3. Strong accessory categories continue to be hats, sunglasses both in our premium Oakley brand and also in our under $15 price points, with our fragrance cologne business growing again.
On the marketing front, we continued our normal campaigns with us just finishing our 50 anniversary event, which was well received by our team and guests. We tried a new concept of getting our great sales people in front of new guests by putting a booth up that we best – with some of our best partners.
The country event drew 130,000 people letting more people experience our great service to product. Now, going back to kind of the overall numbers on a combined basis, accessory sales for the quarter were down approximately 8.5%, while footwear sales were approximately up 1%.
These two categories accounted for approximately 10.5% and 6.5% respectively of second quarter net sales which compares to 10% and 5.5% for each in the second quarter of fiscal 2016. Average accessory price points are down just slightly and average footwear price points were down approximately 3.5%.
Again on a combined basis for the quarter, denim accounted for approximately 32% of sales and tops accounted for approximately 34% which compares to 33.5% and 32.5% for each in the second quarter of fiscal 2016. Our private label business was up slightly as a percentage of net sales and represented approximately 32.5% of sales.
And with that, we welcome your questions. Thanks for being here.
Operator
Thank you. [Operator Instructions] And our first question will come from the line of Simeon Siegel with Nomura Instinet.
Your line is open.
Julie Kim
Dennis Nelson
Julie Kim
Dennis Nelson
Julie Kim
Dennis Nelson
Operator
Thank you. Our next question will come from the line of Tiffany Kanaga with Deutsche Bank.
Your line is open.
Tiffany Kanaga
Dennis Nelson
Tiffany Kanaga
Dennis Nelson
Tiffany Kanaga
Tom Heacock
Tiffany Kanaga
Dennis Nelson
Operator
Thank you. Our next question comes from the line of Carlton Getz with Winter Harbor.
Your line is open.
Carlton Getz
Dennis Nelson
Carlton Getz
Dennis Nelson
Carlton Getz
Dennis Nelson
Carlton Getz
Dennis Nelson
Operator
Thank you. Our next question comes from Ujjval Dave with Ujjval Investments.
Your line is open.
Ujjval Dave
Tom Heacock
Ujjval Dave
Tom Heacock
Ujjval Dave
Dennis Nelson
Ujjval Dave
Dennis Nelson
Ujjval Dave
Operator
Thank you. Our next question comes from the line of Steve Marotta with CLK & Associates.
Your line is open.
Steve Marotta
Tom Heacock
Steve Marotta
Dennis Nelson
Steve Marotta
Operator
Thank you. Our next question comes from line of [indiscernible] with BOVA.
Your line is open.
Unidentified Analyst
Dennis Nelson
Unidentified Analyst
Dennis Nelson
Unidentified Analyst
Dennis Nelson
Unidentified Analyst
Operator
Thank you. Our next question comes from the line of Mark Harris with Harris & Associates.
Your line is open.
Mark Harris
Dennis Nelson
Mark Harris
Dennis Nelson
Mark Harris
Dennis Nelson
Operator
Thank you. We will go to the line of Kyle Kavanaugh with Palisade Capital.
Your line is open.
Kyle Kavanaugh
Dennis Nelson
Kyle Kavanaugh
Dennis Nelson
Kyle Kavanaugh
Dennis Nelson
Kyle Kavanaugh
Dennis Nelson
Kyle Kavanaugh
Dennis Nelson
Kyle Kavanaugh
Dennis Nelson
Kyle Kavanaugh
Dennis Nelson
Operator
Thank you. Our next question will come from the line of John Deysher with Pinnacle.
Your line is open.
John Deysher
Dennis Nelson
John Deysher
Dennis Nelson
John Deysher
Dennis Nelson
John Deysher
Dennis Nelson
John Deysher
Dennis Nelson
John Deysher
Dennis Nelson
Operator
Thank you. We have a follow-up from the line of Tiffany Kanaga with Deutsche Bank.
Your line is open.
Tiffany Kanaga
Dennis Nelson
Tiffany Kanaga
Dennis Nelson
Operator
Thank you. We have a follow-up from the line of Carlton Getz with Winter Harbor.
Your line is open. And Carlton, please check your mute button.
Carlton Getz
Dennis Nelson
Kelli Molczyk
Dennis Nelson
Carlton Getz
Dennis Nelson
Carlton Getz
Dennis Nelson
Operator
Thank you. We will follow-up from the line of Ujjval Dave from Ujjval Investments.
Your line is open.
Ujjval Dave
Dennis Nelson
Ujjval Dave
Dennis Nelson
Ujjval Dave
Dennis Nelson
Ujjval Dave
Dennis Nelson
Ujjval Dave
Dennis Nelson
Ujjval Dave
Operator
Thank you. [Operator Instructions]
Kyle Hanson
As we come to top hour, if there is no further questions we would like to thank everyone for your participation today and then we will wrap it up. So, thank you very much.
Operator
Thank you. And ladies and gentlemen, today’s conference call will be available for replay after 11 a.m.
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