Earnings Call: Q2 2022

Aug 20, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the 2021 Second Quarter Earnings Release As a reminder, the conference is being recorded. 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 Kelly Molszek, Vice President of Women's Merchandising are Bob Carlsberg, Senior Vice President, Amend Merchandising and Brady Fritz, Vice President, General Counsel and Corporate Secretary. As they review the operating results for the Q2, which ended July 31st, they would like to reiterate their policy of not giving future sales or earnings guidance can 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 may be beyond the company's control. Accordingly, the company's future performance and financial results may differ materially from those expressed are 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 future changes make it clear that any projected results expressed or implied therein will not be realized. Additionally, the company does not authorize 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. I would now like to turn the conference over to our host, Tom Heacock. Please go ahead. Good morning, and thanks for joining us this morning. Our August 20, 2021 press release reported that net income for the 13 week Q2 ended July 31, 2021 was $51,400,000 or $1.04 per share on a diluted basis, which compares to net income of $34,700,000 were $0.71 per share on a diluted basis for the prior year 13 weeks Q2, which ended August 1, 2020. Year to date net income for the 26 week period ended July 31, 2021 was 108,700,000 were $2.20 per share on a diluted basis compared to net income of $22,900,000 or $0.47 per share are on a diluted basis for the prior year 26 week period ended August 1, 2020. Net sales for the 13 week 2nd quarter increased 36.6 were $295,100,000 from net sales of $216,000,000 for the prior year 13 week 2nd quarter. Compared to the Q2 of fiscal 2019, net sales increased 44.8% from net sales of 203,800,000 Online sales for the quarter were $43,400,000 a decrease of 5.5% compared to $46,000,000 in the Q2 of 2020 and an increase of 88.1 percent compared to $23,100,000 in the Q2 of 2019. Year to date, net sales increased 79.3 percent to $594,200,000 from net sales of $331,400,000 for the prior year 26 week fiscal period ended August 1, 2020. Compared to the same 26 week fiscal period in 2019, net sales increased 46.7% and net sales of $405,100,000 Online sales for the year to date period were $97,200,000 are in the range of 24.5 percent compared to $78,100,000 for the same 26 week fiscal period in 2020 in an increase of 104.5 percent compared to $47,500,000 for the same 26 week fiscal period in 2019. For the quarter, UPT decreased approximately 6.5%, the average unit retail increased approximately 2.5% participants and the average transaction value decreased about 4%. Gross margin for the quarter was 48.1%, up from 43.2% in the Q2 of 2020. Our year to date gross margin was 48.7% compared to 36.3 percent for the same period last year. The 2nd quarter increase in gross margin was the result of a 50 basis point improvement in merchandise margins, Coupled with 440 basis points of leverage occupancy buying and distribution costs as a result of the strong sales performance for the quarter. Selling, general and administrative expenses for the quarter were 25.1 percent of sales compared to 22.1% for the Q2 of 2020. Participants are in the range of $1,000,000,000. Year to date SG and A was 24.5 percent of net sales, down from 27.4% for the same period last year. The 2nd quarter increase was due to a 250 basis point increase in incentive compensation accruals and 130 basis point increase in store labor related participants Our operating margin for the quarter was 23% compared to 21.1% for the Q2 of fiscal 2020. For the year to date period, our operating margin was 24.2% compared to 8.9% 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%, are bringing 2nd quarter net income to $51,400,000 for 2021 compared to $34,700,000 for 2020. Participants are in the range of $1,000,000 or $0.01 per share. Our income tax expense as a percentage of pre tax net income for both the current and prior year to year to date periods was also 24.5%, year to date net income to $108,700,000 for 2021 compared to $22,900,000 for fiscal 2020. Our press release also included the balance sheet as of July 31st, which included the following: inventory of $95,300,000 which was down from inventory of $116,500,000 as of August 1, 2020 and total cash and investments of $434,900,000 We ended the quarter with $99,700,000 in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $4,600,000 are in the range of $8,600,000 for new store construction, store remodels and technology upgrades and $600,000 for capital spending at the corporate headquarters and distribution center. During the quarter, we opened 1 new used store, completed 2 full remodels, both of which were relocations in the new outdoor shopping centers participants close one store. This brings our year to date totals to 1 new store, 7 full remodels and 2 store closures. For the remainder of the year, we anticipate completing 6 additional full remodeling projects. Based on current store plans, we now expect our capital expenditures to be in the range of $12,000,000 to $15,000,000 which includes both planned store projects and IT investments. We'll go ended the quarter with 4 42 retail stores in 42 states compared with 4 46 stores in 42 states at the end of the Q2 of fiscal 2020. Will now turn it over to Kelly Mollsvig, Vice President of Women's Merchandising. Thanks, Tom. I would like to start by highlighting the performance of our women's merchandise categories for the quarter. Women's merchandise sales for the fiscal quarter were up approximately 31.5% against the prior year's fiscal quarter. For the quarter, our women's business was approximately 45% of sales compared to 46.5% in the prior year. Average denim price points increased from $74.60 in the Q2 of fiscal 2020 are subject to $74.65 in the Q2 of fiscal 2021. And overall average women's price points increased are about 3.5 percent from $38.65 to $40 What an exciting quarter as we saw continued are strong responses to new products in every category. Our denim across all fits, brands and classifications drove our growth. We worked hard to balance our core fits and stretch fabrics with new fit, fashion fits and rigid fabrics, which has significantly participants expanded the variety in our denim selection. Our private label denim continues to represent a larger share of our mix are a key contributor in driving our denim sales for the quarter. Outside of denim, our offering in shorts and a variety of fabrics, including denim, and mix are also strong as guests continue their buy now, wear now purchasing patterns. The 2nd quarter also brought fashion shifts guests reemerge from their homes and return to normal activities. They moved away from the simple and casual items participants are participating in fashion tops, dresses and 2 piece sets, graphic tees, fashion footwear and accessories. With the expanded number of brands and lifestyles we now offer in our stores, we are excited about the opportunities we've created will continue both capturing new guests and engaging our loyal guests. Our youth business also saw a nice lift in sales throughout the quarter participants have taken started back to school. Our teams have done an amazing job of putting buckled youth on the map through both our 4 freestanding youth locations, along with an expanded assortment in our regular stores. We've added used top to bottom assortment to another 75 of are local stores, which takes us to 3 50 stores with the presence of youth products. Despite are in the same store. During the quarter, the team continues to work very closely with our brand partners on creative solutions to minimize the impact to our women's business. This will be an ongoing focus for us as things continue to evolve over the coming months. I want to sincerely thank all of our vendors and brand partners participants continue to keep Buckle at the forefront of fashion. And with that, I'll turn it over to Bob Carberg, Senior Vice President of Men's Merchandising to discuss the performance of men's Thanks, Kelly. Men's merchandise sales for the fiscal quarter were up 40.5% against the prior year fiscal quarter. For the quarter, our men's business was approximately 55% of net sales compared to 53.5% in the prior year. Average sale price points decreased from $87.85 in Q2 of fiscal 2020 to $85.10 in the Q2 Our overall average men's price points increased slightly from $45.80 to $45.85 participants. Q2 was another standout quarter as we delivered fresh new product for our guests. Denim led our men's dollar increase with continued strength in our private brands. BKE still being our largest, along with strong trends in rock revival on our street brand. Net shirts, especially graphic participants showed incredible growth driven by the best balance of brands, lifestyles, colors and graphics I've ever seen. Our teams did a great job with curating looks from all American to country to street to West Coast, enabling our teammates to serve any age and lifestyle. Shorts and accessories were our next largest growth are very strong overall as we extended our elastic waist business without losing our flat front and long time good cargo business. Almost all accessory categories performed well led by hats, fragrance and Oakley glasses. Youth growth has been fun to see not only in our 4 youth only doors, but the in our full line stores has also been very successful. It's much smaller dollars, but I'm excited to say that our bottom our button front business is back and growing. I can't say enough to thank our sales and support teammates as well as our guests for all they have done to make this happen. We've made the best of a are in a challenging year for both building and sourcing product, as you can see from our results. Now turning to results on a combined basis. Accessory sales for the fiscal quarter were up approximately 43% against the prior year fiscal quarter, while footwear sales were up about 14.5%. These two categories accounted for approximately 10% 8%, respectively, as 2nd quarter net sales. This compares to 10% and 9.5 are each in the Q2 of fiscal 2020. Our average accessory price points were up approximately 5.5%. Average footwear price points were up about 2%. Again, on a combined basis for the quarter, debt accounted for approximately 33.5% of sales, for the quarter, our private label business represented approximately 30% of sales. And with that, we welcome your questions. Thank you. Are ready. Our first question comes from the line of Peter Brochi from Brochi Capital. Your line is open. Please go ahead. Participants. Yes. Good morning. Thanks for taking my call. I realize that you guys don't give guidance and Don't necessarily think that the growth that you've experienced recently is completely are related to the stimulus payments that we've seen, but I wonder if you could comment on the sustainability of the recent growth based upon Good morning, Peter. Well, we feel really good about What we have going on with our stores and our online, the participants One thing we've noticed is we've added over 40% new guests over this past year. In addition, we've relocating some of our mall stores in the outdoor power centers and lifestyle centers, which We've had very good response. We're especially proud of our teams. We always take a specialty store approach. We have great talent in our stores that provide an excellent experience for our guests and enjoyable. Participants and our merchandise teams, we continually hear they know and understand our guests better participants work with. And that's why we've been able to provide on target fashion There are some challenges with the supply line, but that's been going on for a year and a half. Participants are in the same store. We see a plus for us is a lot of our product is exclusive as In addition to private label with our brands, a lot of exclusive products that our guests will look forward to buying if it's not available for a few weeks that we see them continually shopping us to come in and find their favorite denim fits and selection of product. Okay, great. Thanks very much. Yes, so the supply chain, the shipping costs seem to be elevated for everybody, and that was participants My next question, so thanks for addressing that. But coming into holiday, you don't see that as a big problem then? How do you feel about that? Like I said, there's challenges just like there has been with the shutdown in Vietnam. We're going to have some Since things reopened for a long time, so we've been our teams have been planning with our vendors. Have a long term great working relationship with our partners. And so, they go out of their way to help us as well as we're always working with them to develop more product. And so, there are going to be some expense gains, but I think we've managed A lot of that pretty well and figured out opportunities as we've gone along. Participants We think we can manage are very well and there could be some periods of time that will not be as strong as others, but we're very feel very good about Our next question comes from the line of Steve Marotta from C. L. King and Associates. Please go ahead. Your line is open. Participants. Good morning. Thank you for taking my question. Dennis, I have a question. And again, I know that you don't provide quarter to date guidance nor any sort of future guidance. But Chatter is that within the retail channel, August has slowed a little bit from the pace in June July. And with that as a backdrop, and again, not specific to the Buckle, is it and I know this is a bit reverse logic, Is it the worst thing in the world if demand slows a little bit to a better match what is the flow of goods currently, which is obviously a little bit tricky. In other words, demand is a significant thing outstripping supply at this moment And the supply chain is probably not getting any better. Would it be again the worst thing in the world if demand flows a little bit in order to better align those 2? Well, we don't like to put off what we can settle today, but If there is any slowness proceeding that and that helps us catch up, then I guess that is a small win. We do have a question from the line of Kyle Kavanaugh from Talaseeb Capital. Your line is open. Please go ahead. I was just curious, I don't know if could you just comment On the online sales year over year dynamic? And then also The leverage of occupancy, was that just sales growth or did you also have rents or anything going on the rent side as well? Well, on the online business, last year, I think we had 2 months up participants 100%, another one around 90% or 88%. So being off 5% this quarter, I don't see that are particularly shocking, especially seeing how our guests were going back to more of them were going back to the stores are having great response there. And on the occupancy, I think the largest part was the growth in sales, although we feel very good about our renewals and Our next question comes from the line of Dave Yuval from Yuval Investments. Your line is open. Please go ahead. Hi. Thank you. This is Ujjwal, Dave. Participants. I have a question over the insider ownership. One prominent aspect of Buckle has been significant insider ownership, participants are very pleased by the Founder, Daniel and you, Dennis. This is a great word of confidence in the business. Dennis, you have been the steady Eddie with Your stake more or less remained stable over many, many years. If I look at 2020 proxy statements, you had more than 3,200,000 shares, which was are nearly 6.6% of the total outstanding shares. However, if I as for the recent SEC Form 4 filings, You have been drawing out very significant amount of shares on a regular basis. Since April of this year, you have sold more than 36% of your total ownership. Now your ownership is strategic acquisition rights is around 4.2% compared to 6.6% just 12 to 15 months back. I'm just wondering if there is any particular force behind this extensive selling. Should we expect any retirement news or management have been working on some estate planning and we have no announcements at this time. Our next question comes from the line of David Berman from Berman Capital. Your line is open. Please go ahead. I see on a 2 year basis sales up 45% And energy is actually down 26%. Similar to the last quarter, I've never seen any ratio like this before. But one of the things that you're working good at doing is turning your energies fast. And I think last few years, that slowed a little bit. So, are we is this like a permanent sort of improvement in the terms of the business that you want to keep at this level? Participants Just curious what whenever you want to take what inventory is at for the quarter. Well, it's not a level of inventory that we want to maintain. We know we're missing some sales at this level. It's just difficult to catch up on the inventories with the growth of our sales being in the participants 36% higher percent the first quarter. As far as planning and then with some disruptions in the supply change also adds to complications. So, we're planning out and we expected to participants get closer to a normal level by this fall. And now Vietnam, it might take a little bit longer, but We still have some great selection and a substantial part of our planned inventory coming in. So we're just the team is doing their best and planning to get that level up. Participants But with the sales up so strong, despite this sort of low inventory, why wouldn't this be what you prefer? Participants Well, We don't want to disappoint some of our guests. And if we're close to this level, then I guess need to be happy about that. But we hope to improve on that a little bit, but still keeping high turns. And we have a follow-up question from the line of participants Kyle Kavanaugh, your line is open. Please go ahead. I was just wondering if you could comment on the environment within the mall, maybe the competitive environment, what the landscape is, how it's different now, whether or not there's Less competition and some of your sales gains or market share gains or just the catch up participants are being cooped up. So just curious if you can comment on the landscape competitive environment? Regarding the malls or different shopping areas, we're in participants have a very good malls that have good traffic and they're great for us. We've also found malls that are no longer the best shopping experience for our guests in a center where we've moved to power centers, and we've been very happy with that. We still have some outdoor lifestyle centers that we've improved our location in and such. So, we look at set us up for the future in these opportunities. And I think the it seems like We're gaining extra market share, more guests are seeing that they can shop us where they used to think they were too old or participants are in the same store. Our price points used to be too high when back in the 'eight to 'fifteen range When a lot of our denims were $120, $160 we maybe lost some guests that have been shop us then and now they're seeing us participants may be in the $75, $80 average price, even though we have a wide selection of prices And so, I think we've separated ourselves where we're now a great destination store for denim especially, but also participants are very pleased with the performance of the store. We're very pleased with the performance of the store. We're very pleased with the performance of the store. We're very pleased with the performance of the store. We think we're winning over fans that way, and we'll continue to work at that. And Just a little follow-up on the online strategy. Is there any current changes or kind of emphasis or priorities right now with your We'll continue to try to better serve our guests on it with other paying methods. And Our marketing team continues to hire staff where we can make it a better shopping experience and So we're certainly continuing to look on how to improve that just like we do the rest of the company. Participants. And there are no further questions in the queue. If there are no questions, we can wrap up the call today and thank everyone for participating and enjoy the rest of the day. Thank you very much. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT and T conferencing services. You may now disconnect.