The Buckle, Inc.
Q4 2014 Earnings Call Transcript

Published: 13 Mar 2015

[Operator:]

Ladies and gentlemen, good morning. Thank you for standing by, and welcome to the Fourth Quarter Earnings Release Conference Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. Members of Buckle management on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and Chief Financial Officer; 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; Tom Heacock, Vice President of Finance, Treasurer and Corporate Controller. As they review the operating results for the fourth quarter, which ended January 31st, 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 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 to be inaccurate. At this time, I would like to turn the conference over to our host, Chief Financial Officer, Ms. Karen Rhoads. Please go ahead.

[Karen Rhoads:]

Thank you. Good morning, everyone. Thanks for joining the call this morning. We wanted to share with your our results. Our March 13, 2015 press release reported that net income for the 13 week fourth quarter that ended January 31, 2015 was $16.1 million or $1.25 per share on a diluted basis. That is compared to net income of $59.3 million or $1.23 per share on a diluted basis for the prior year 13-week fourth quarter that ended February 1, 2014. Our net income for the 52-week fiscal year that ended January 31, 2015 was $162.6 million or $3.38 per share on a diluted basis. That is compared to net income of $162.6 million or $3.39 per share on a diluted basis for the prior year 52-week fiscal year that ended February 1, 2014. Our net sales for the 13-week fourth quarter increased 4.3% to $353.5 million compared to net sales of $339.0 million for the prior year 13-week fourth quarter. Comparable store sales for the quarter were up 1.1% in comparison to the same 13-week period in the prior year. Our online sales, which for last fiscal year were not included in comparable store sales, increased 12.6% to $33.0 million. Net sales for the 52-week fiscal year increased 2.2% to $1.153 billion compared to net sales of $1.128 billion for fiscal 2013. Comparable store sales for the fiscal year were flat in comparison to the same 52-week period in the prior year and online sales, which are not included in comparable store sales, increased 6.0% to $94.3 million. Gross margin for the quarter was 47.4%, down approximately 20 basis points from 47.6% for the fourth quarter last year. The decrease was driven by a 30-basis point reduction in merchandise margins, partially offset by reductions as a percentage of net sales and other occupancy, buying and distribution expenses. For the fiscal year, gross margin was 44.0%, down approximately 20-basis point from 44.2% for the same period last year. The decrease was driven by a 10%-basis point reduction in merchandise margin and an increase as a percentage of net sales in certain other occupancy, buying and distribution expenses. Selling expense for the quarter was 18.6% in net sales compared to 18.5% for the fourth quarter of fiscal 2013. For the fiscal year, selling expense was 18.4% of net sales compared to 18.3% for fiscal 2013. General and administrative expenses for the quarter were 2.1% of net sales compared to 1.3% for the fourth quarter of fiscal 2013. This was driven by an increased in equity compensation expense and certain other general and administrative expenses. For the fiscal year, general and administrative expenses were 3.3% of net sales compared to 3.1% for fiscal 2013, driven by an increase in equity compensation expense as well as increases in certain other general and administrative expenses. Our operating margin for the quarter was 26.7% compared to 27.8% for the fourth quarter of fiscal 2013. For the full fiscal year, our operating margin was 22.3% compared to 22.8% for fiscal 2013. Other income for the quarter was $1.9 million compared to $2.2 million for the fourth quarter of fiscal 2013. Other income for the full fiscal year was $2.7 million compared to $3.5 million last year. Income tax expense as a percentage of pre-tax net income was 37.6% for the fourth quarter of fiscal 2014 compared to 38.6% in the fourth quarter of fiscal 2013, bringing fourth quarter net income to $60.1 million for fiscal 2014 versus $59.3 million for fiscal 2013. For the full fiscal year, income tax expense was 37.4% of pre-tax net income for fiscal 2014 and 37.6% for fiscal 2013, bringing net income to $162.6 million for fiscal 2014 compared to $162.6 million for fiscal 2013. Our press release also included a balance sheet as of January 31, 2015, which included the following, inventory of $129.9 million, which was up approximately 4.5% from inventory of $124.1 million at the end of fiscal 2013 and total cash and investment of $203.3 million, which compares to $228.5 million at the end of fiscal 2013. As of the end of the year, inventory on a comparable store basis was up slightly and total markdown inventory was up compared to the same time a year ago. We also ended the year with $172.7 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $9.2 million and depreciation expense was $8.4 million. For the full fiscal year, capital expenditures were $45.5 million and depreciation expense was $31.7 million. Year-to-date capital spending is broken down as follows, $31.2 million for new store construction, store remodels and store technology upgrades and $14.3 million for capital spending at the corporate headquarter and distribution center. We currently expect our fiscal 2015 capital expenditures to be in the range of $35 to $39 million, which includes primarily new store and store remodeling projects, IT investments and completion of the construction of a new office building as part of our home office campus in Kearney, Nebraska. For the quarter, UPTs increased approximately 3.5%, the average transaction value increased approximately 5%, and the average unit retail increased approximately 1.5%. For the full fiscal year, UPTs increased 2.5%, the average transaction value increased 4% and average unit retail increased approximately 1.5%. Additionally, our average sale per square foot for the year were $459 compared to $461 in fiscal 2013 and our average sales per store was 2.3 million in both fiscal 2014 and 2013. The Buckle ended the year with 460 retail stores in 44 states compared to 450 stores in 43 states at the end of fiscal 2013. Additionally, our total square footage was 2.343 million square feet as of the end of the year compared to 2.271 million square feet at the same time a year ago. At this time, I would like to turn the call over to Tom Heacock, Vice President of Finance, Treasurer and Corporate Controller.

[Tom Heacock:]

Good morning and thanks for joining us this morning. I would like to start by highlighting the performance of our various merchandized categories for both the quarter and for the full fiscal year. Men's merchandise sales for the quarter were up approximately 10% with strong categories including and casual bottoms, woven and knit shirts, sweaters, outwear and accessories. Average denim price points increased from $88.45 in the fourth quarter of fiscal 2013 to $91.25 in the fourth quarter of fiscal 2014. For the quarter, our men's business was approximately 47% of sales compared to 44.5% last year and our average men's price points decreased approximately 1% from $59.90 to $59.35. For the full fiscal year, men's merchandise sales were up approximately 7% with strong categories, again, including denim and casual bottoms, knit shirts, sweaters, shorts, outerwear and accessories. Average denim price points increased from $89.15 in fiscal 2013 to $92.05 in fiscal 2014. For the year, our men's business was approximately 43.5% of sales compared to approximately 41.5% last year and our average men's price point increased slightly from $55.60 to $55.85. Women's merchandise sales for the quarter were flat in comparison to the same period last year and strong categories included woven and knit tops, sweaters, active apparel, outerwear and footwear. Our average denim price points on the women side decreased from $98.85 in the fourth quarter of fiscal 2013 to $98.20 in the fourth quarter of fiscal 2014. For the quarter, our women's business was approximately 53% of net sales compared to 55.5% last year and our average women's price points increased approximately 4.5% from $49.80 to $52.05. For the full fiscal year, women's merchandise sales were down approximately 1% with strong categories including casual bottoms, woven and knit tops, sweaters, active apparel, outwear and footwear. Our average denim price points for the full year increased from $98.40 in 2013 to $98.90 in fiscal 2014. For the year, our women’s business was approximately 56.5% of sales compared to approximately 58.5% last year and average women's price points increased approximately 1.5% from $48.15 and $49. For the quarter, combined accessory sales were down approximately 4.5% and combined footwear sales were up approximately 10% These two categories accounted for approximately 9% and 5%, respectively, of fourth quarter net sales which compares to approximately 9% and 5% for each in the fourth quarter of fiscal 2013. Our average accessory price points were down approximately 3.5% and average footwear price points were up approximately 12.5%. For the full fiscal year combined accessory sales were up approximately 3% and combined footwear sales were up approximately 4.5%. These two categories accounted 8.5% and 6%, respectively, of net sales for both fiscal 2014 and 2013. Average accessory price points were up approximately 3.5% for the year and average footwear price points were up approximately 8.5%. For the quarter, denim accounted for approximately 46.5% of sales and tops accounted for approximately 31.5%, which compares to approximately 48.5% and 30.5% for each in the fourth quarter of last year. For the full year, denim accounted for approximately 43.5% of sales and tops accounted for approximately 31%, which compares to approximately 45.5% and 30% for each in fiscal 2013. Our private label business was up slightly as a percentage of sales for both, the fourth quarter and the year and represented approximately 35% of sales for the full year. During the fourth quarter, we opened two new stores, completed one substantial remodel and closed three stores post-holiday, bringing our account for the full year to 16 new stores, 18 full remodels and six store closures. As of the end of the year, 365 of our 460 stores were in our newest format. For fiscal 2015, we anticipate opening nine new stores, which includes two stores that opened earlier this week, one additional for spring and one for back-to-school and five for holiday. We also anticipate completing 11 substantial remodels during the year. By season, we anticipate six of the remodel stores will be completed for spring and five will be completed for back-to-school. Planned new store openings for the spring, include stores in Mount Pleasant, South Carolina, Omaha, Nebraska and Bradley, West Virginia. With that we will open it up to your questions.

[Operator:]

[Operator Instructions] Our first question today comes from Ed Yruma of KeyBanc Capital. Please go ahead.

[Ed Yruma:]

Hi, guys. Thanks for taking my question. Dennis, kind of a bigger picture question first. 2014 was really the first kind of flattish earnings that you guys have had since 2008. I am just trying to understand was that the environment, was it denim, was there something you could have done differently and then I guess is this kind of the earnings trajectory we should expect from Buckle going forward?

[Dennis Nelson:]

Good morning, Ed. I think it was a combination of things. The denim cycle in the ladies was a little more challenging after all our years of growth, so that was a little bit of it. I think the challenging environment was part of it, so a combination of things. I am sure that there’s things we are working on to continue to improve that we feel like we are in a very good position going forward. As you know we do not make forward projections, so thank you.

[Ed Yruma:]

Got it, and a follow-up, I was wondering if you could give us an update on how the kids' assortment in the stores that have is performing and whether that is something you expect taking more spaces in the store. Thank you.

[Dennis Nelson:]

Yes. We have been pretty happy with our kids business, and I know and the boys' part of it, we plan to expand more stores for back-to-school. Spring and summer, we are kind of maintaining the status quo for the number of stores we have, but it has been a nice plus, still a very small part of our business, but we do like it.

[Ed Yruma:]

Great. Thanks so much.

[Dennis Nelson:]

Thank you.

[Operator:]

Our next question today comes from the line of Simeon Siegel representing Nomura Securities. Please go ahead.

[Simeon Siegel:]

Thanks. Good morning, guys.

[Dennis Nelson:]

Good morning.

[Simeon Siegel:]

Karen, can you talk about the merch margin dynamics? With AUR up, but merchandise margins down is that mainly driven by mix? Then I guess maybe to the past question, how do you view the promotional environment in general, maybe what the right way to think about that going forward? Then just I think you had initially said it would be minimal, but can you just update was there any impact from the port strike? Thanks.

[Karen Rhoads:]

Merchandise cover the port strike, but on the merch margin, I a little bit of that came from markdowns, It will be combined a little bit with product mix, but actually where we kind of cleaned up on the markdowns at the end of the year, I think, we felt pretty good about where that product is that the current time. I do not know, Dennis, if you have any further comments on…?

[Dennis Nelson:]

I mean, it is pretty much a seasonal deal and kind of hits certain points, but we feel very good about our margin, our inventory, so we are ready for spring there. On the port strikes, well we did have several categories that impact to a certain degree and probably started toward mid-late November, we started seeing the impact and had deliveries anywhere from 2 to 10 weeks late, so that has had an effect in starting for spring.

[Simeon Siegel:]

Okay. Great. Thanks, guys, and best of luck for the coming year.

[Dennis Nelson:]

Thank you.

[Karen Rhoads:]

Thank you.

[Operator:]

Our next question today comes from the line of Thomas Filandro with SIG. Please go ahead, sir.

[Thomas Filandro:]

Nice job on getting another quarter of solid business execution to all.

[Dennis Nelson:]

Thanks.

[Thomas Filandro:]

Dennis, could you expand or maybe Karen as well expand, a little more on that port comment, is there lingering issues here that we should be concerned about? Are you seeing any staggering of product coming in for the spring season then I have two other question just that one quick please?

[Dennis Nelson:]

Okay. We still have some delays on some of our products. We had started to see a better pickup over the last 10 days on product coming in, but there could still be some impact to that business.

[Thomas Filandro:]

The next question I have is sort of an odd question, but there has been some concern out there that your business could be negatively impacted in the so called shale states with employment issues. I was just curious if you’ve experienced any regional variance in the business and particularly kind of highlight those shale states. Then a question for Pat and Bob, could you tell us what you are seeing in terms of trends for either brands or silhouettes in denim and any comments about any churns in tops for spring. Thank you.

[Dennis Nelson:]

Regards, the regional, through fourth quarter we did not see any real change in what was going on in our store, so I will defer to Bob and Pat now.

[Thomas Filandro:]

Thank you.

[Bob Carlberg:]

On the men side for denim, we are seeing some movement toward the straights or kind of the slimmer bottom opening and a lot of light and destructed seems to be working. From the top side, we just really continued to get past the competitors as far as bodies, fabrics, washes, colors, blocking just making the product a lot more interesting, so on a 360-degree look at the product, you would see details on all aspects of the product.

[Thomas Filandro:]

Thank you, Bob.

[Pat Whisler:]

Good morning. This is Pat. The denim side of the ladies, what I really enjoyed it that we kind of had a quite cycle there on denim, that was very singular focus and I see that opening up a little bit, which we are loving place kind of into our [strong] [ph] suit, more destructed denim, just the nice abrasion and a variety of fabrics and finishes, so we feel good about the denim picture. Our tops continue to be a great mix of private label and branded. We have a brand, in-house brand like Gimmicks, which is kind of a cornerstone brand for us and it is performing very well and just kind of enhances the whole top selection, but we are getting west coast brands a nice blend of in-house brands and overall feeling pretty good about the mix.

[Thomas Filandro:]

Excellent. Best of the continued success.

[Dennis Nelson:]

Thank you.

[Pat Whisler:]

Thank you.

[Operator:]

Next, we will go to line of Paul Alexander with BB&T Capital. Please go ahead.

[Paul Alexander:]

Hi, guys. Thanks for the question. Just a follow-up on that denim point, do you think there is enough trend out there now, where you think you can again return women's denim to positive territory. Then a follow-up question, can you talk about increase in e-commerce growth in fourth quarter? Was that driven by new investments and projects and was it more clearance-related, and does that channels out performance versus stores make you think any differently about e-commerce investment going forward? Thank you.

[Dennis Nelson:]

This is Dennis. I will take the girls denim part. We are seeing more interest in a variety of brands as well as what Pat mentioned as far as different finishes and we are still selling a variety of different fits, so we are encouraged with what we have going on there. Then, Kyle, do you want to comment on the online?

[Kyle Hanson:]

Sure. We increased our support for paid search and that also led to some new acquisition strategies, primarily in fourth quarter and then or through some targeted display services, tested some of those and then actually increased our e-mail volumes.

[Pat Whisler:]

This is Pat. Again, I might add to that, I think our teams did an excellent job of maximizing the inventory levels as we went into the quarter and getting us in good shape on our product selection. We also worked on enhancing our visual presentation of products online and have a team focused on that aspect going forward, and then there is more of an overlap there with merchandising and we had Kelli Molczyk who is working closely with that team as well.

[Dennis Nelson:]

Thank you, Paul.

[Operator:]

Our next question comes from the line of Liz Pierce, representing Brean Capital. Please go ahead.

[Liz Pierce:]

Nice job on the quarter. I am going to just kind of follow-up on a couple of the questions were already been asked. On the kids' business, Dennis, you mentioned that you are going to expand the boys, but I have noticed that there seems to be more kind of visuals on the web, but on all of them, so does that mean the girls was outperforming on the web versus the store?

[Dennis Nelson:]

We started the ladies side more aggressively than the boys and actually 6 to 12 months kind of ahead of the boys, so we have expanded the product lines there and have a little more experience with it, so what you see for back-to-school is kind of the men's adding additional stores, you kind of have about the same levels as the ladies.

[Liz Pierce:]

Okay, so basically playing catch-up?

[Dennis Nelson:]

Somewhat, yes.

[Liz Pierce:]

Okay. All right looks really cute, and I also just wanted to, I would say to Pat, on her visuals, because I think that the website was so much better and I was wondering if that had a lot to do with the year-over-year increase, but clearly if there were a couple of things. Anyway, that is all I have. Thank you and best of luck.

[Pat Whisler:]

Thank you, Liz.

[Dennis Nelson:]

Thank you.

[Operator:]

[Operator Instructions] We will go to line of Steve Marotta with C.L. King & Associates. Please go ahead.

[Steve Marotta:]

Good morning, everybody. Can you please talk about e-commerce initiatives for the current year? What is going on there in order to drive increase sales? Thank you.

[Karen Rhoads:]

Thanks for the question. In addition to working with the visuals as Pat mentioned, we are going to continue just to review our search programs as well as looking at strengthening of services [ph] through display and new acquisition, while making sure that we are watching our e-mail list of question [ph] rate and being wise in how we are spending our dollars there from a marketing perspective.

[Pat Whisler:]

The only thing I can think to add there is we do have the same overlap onto our e-mail approach, which I think is working well.

[Steve Marotta:]

Thank you. We will go to line of Lee Giordano with CRT Capital. Please go ahead. Mr. Giordano. Apparently, he took himself out of queue. [Operator Instructions] We will go back to Mr. Giordano's line. Please go ahead.

[Lee Giordano:]

Hi. Can you hear me?

[Dennis Nelson:]

Yes. Good morning. Lee.

[Lee Giordano:]

Good morning. Just on the nine new stores for this year, wondering if that is the maximum if the plans are finalized or if you might be ramping that up even further. That is it. Thanks.

[Dennis Nelson:]

I think that is possible that there could be another one or two added, but for planning stages, it is getting little late, so my best guess is it will stay at nine.

[Lee Giordano:]

Thank you.

[Dennis Nelson:]

Yes.

[Operator:]

Presenters, there are no other participants queuing up at this time.

[Karen Rhoads:]

Okay. With no other callers coming in or questions coming up, we would like to thank everybody for joining us today, and wish everyone a great weekend.

[Operator:]

Ladies and gentlemen, this conference will be available for replay starting at 11 am this morning and running through March 27th at midnight. You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 and entering the access code of 355370. Once again that is 355370. International participants may dial 320-365-3844. Those numbers again are 1-800-475-6701. International participants dial 1-320-365-3844 and please enter the access code 355370. That does conclude our conference for today. We thank you for your participation and using the AT&T Executive TeleConference. You many now disconnect.