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The Buckle, Inc. (NYSE:BKE) Q2 2019 Results Earnings Conference Call August 23, 2019 10:00 AM ET
Tom Heacock - Senior Vice President of Finance, Treasurer and Chief Financial Officer
Kelli Molczyk - Vice President of Women's Merchandising
Bob Carlberg - Senior Vice President of Men's Merchandising
Dennis Nelson - President, Chief Executive Officer
- Tom Heacock - 财务高级副总裁，财务主管兼首席财务官
- Kelli Molczyk - 女性商品销售副总裁
- Bob Carlberg - Men's Merchandising高级副总裁
- Dennis Nelson - 总裁兼首席执行官
Tiffany Kanaga - Deutsche Bank
John Deysher - Pinnacle
- Tiffany Kanaga - 德意志银行
- John Deysher - Pinnacle
Ladies and gentlemen, thank you for standing by and welcome to The Buckle's second quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will be conduct a question-and-answer session with instructions being given at that time. [Operator Instructions]. As a reminder, today's 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, Kelli Molczyk, Vice President of Women's Merchandising, Bob Carlberg, Senior Vice President of Men's Merchandising and Brady Fritz, General Counsel and Corporate Secretary. As they review the operating results for the second quarter, which ended August 3, 2019, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following 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 therein may 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 reproductions or recordings of the call should not be relied upon as the information may be inaccurate.
I would now turn the conference over to our host, Tom Heacock. Please go ahead.
女士们，先生们，感谢您的支持，欢迎参加The Buckle第二季度财报发布会。此时，所有参与者都处于只听模式。之后，我们将进行问答环节，并在当时给出指示。 [操作员说明]。提醒一下，今天的会议正在录制中。
Buckle管理层成员今天致电Dennis Nelson，总裁兼首席执行官，Tom Heacock，财务高级副总裁，财务总监和首席财务官，Kelli Molczyk，女性商品销售副总裁，Bob Carlberg，男士商品高级副总裁和Brady Fritz ，总法律顾问和公司秘书。在审查截至2019年8月3日的第二季度的经营业绩时，他们希望重申其未提供未来销售或盈利指引的政策，并根据1995年“私人证券诉讼改革法案”发布以下安全港声明。
Good morning and thanks for joining us this morning. Our August 23, 2019 press release reported that net income for the 13-week second quarter which ended August 3, 2019 was $16.4 million or $0.34 per share on a diluted basis which compares to net income of $15.7 million or $0.32 per share on a diluted basis for the prior year 13-week second quarter which ended August 4, 2018. Year-to-date net income for the 26-week period ended August 3, 2019 was $31.5 million or $0.65 per share on a diluted basis, which compares to net income of $34 million or $0.70 per share on a diluted basis for the prior year 26-week period which ended August 4, 2018.
Net sales for the 13-week second quarter increased 1.4% to $203.8 million compared to net sales of $201.1 million for the prior year 13 week-second quarter. Comparable store sales for the quarter increased 1.8% in comparison to the same 13-week period in the prior year and online sales increased 9.2% to $23.1 million. Year-to-date net sales decreased 0.2% to $405.1 million for the 26-week fiscal period ended August 3, 2019, compared to net sales of $406 million for the prior year 26-week fiscal period which ended August 4, 2018. Comparable store sales for the year-to-date period were up 0.3% in comparison to same 26-week period in the prior year and our online sales increased 7.3% to $47.5 million.
For the quarter, UPTs increased approximately 3%, the average unit retail decreased approximately 4% and the average transaction value decreased about 1%. Year-to-date, UPTs increased approximately 3.5%, the average unit retail decreased approximately 4% and the average transaction value decreased approximately 0.5%.
Gross margin for the quarter was 38.6%, down 60 basis points from 39.2% in the prior year second quarter. The year-over-year decrease was the result of a 70 basis point reduction in merchandise margin, partially offset by a 10 basis point improvement as a percentage of net sales in occupancy, buying and distribution costs. For the year-to-date period, gross margin was 38.4%, down approximately 70 basis points from 39.1% for the same period last year. The decrease for the year-to-date period was the result of a 50 basis point reduction in merchandise margin and a 20 basis point increase in occupancy, buying and distribution costs.
Selling expenses as a percent of net sales for the quarter remained flat at 23.8%. Year-to-date, selling expenses were 23.5% of sales compared to 23.1% in fiscal 2018. For both periods, increases in store payroll expense and online fulfillment and marketing expenses were offset by reductions in certain other selling expenses.
General administrative expenses for the quarter were 5.2% of net sales compared to 5.4% of net sales for the second quarter of fiscal 2018. Year-to-date G&A expenses were 5.4% of net sales compared to 5.3% in fiscal 2018. The year-to-date G&A increase is primarily attributable to increased IT investments, both in terms of increased home office payroll as well as spending for other strategic initiatives.
Our operating margin for the quarter was 9.6% compared to 10% for the second quarter of fiscal 2018. For the year-to-date period, our operating margin was 9.5% compared to 10.7% for the same period last year. Other income for the quarter was $2.1 million compared to $1 million for the second quarter of fiscal 2018 and other income for the year-to-date period was $3.3 million compared to $2.5 million in the prior year.
Our income taxes as a percentage of pretax net income for the quarter was 24.5% compared to 25.9% for the second quarter of fiscal 2018, bringing second quarter net income to $16.4 million for fiscal 2019, compared to $15.7 million for fiscal 2018. Year-to-date, income tax expense was also 24.5% of pretax income, compared to 25.9% in fiscal 2018, bringing year-to-date net income to $31.5 million for fiscal 2019, compared to $34 million for fiscal 2018.
Our press release also included a balance sheet as of August 3, 2019, which included the following. Inventory of $129.1 million which was up approximately 1% from inventory of $127.9 million as of August 4, 2018 and total cash and investments of $245.6 million which compares to $238.8 million at the end of fiscal 2018 and $237.8 million as of August 4, 2008. At quarter-end, inventory on a comparable store basis was up approximately 3% and total markdown inventory was down compared to the prior year.
We ended the quarter with $122.1 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $1.7 million and depreciation expense was $6.2 million. For the year-to-date period, capital expenditures were $4.2 million and depreciation expense was $12.4 million. Year-to-date capital spending is broken down as follows, $3.9 million for store buildout, remodeling and technology upgrades and $0.3 million for capital spending at the corporate headquarters and distribution center.
During the quarter, we opened one new store in Kalispell, Montana, completed two full remodeling projects and closed one store, bringing our year-to-date count to one new store, three full remodels and two store closures. We also anticipate completing one additional full store remodel prior to holiday.
Based on current plans, we still expect our capital expenditures to be in the range of $8 million to $12 million which includes both planned store projects and IT investments. Buckle ended the quarter with 449 retail stores in 42 states compared with 455 stores in 43 states at the end of the second quarter of fiscal 2018. Additionally, our total square footage was 2.32 million square feet at the end of the quarter compared to 2.339 million square feet at the same time a year ago.
And now I will turn it over to Kelli Molczyk, our 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 0.5% against the prior year fiscal quarter. Average denim price points decreased from $75.85 in the second quarter of fiscal 2018 to $72.55 in the second quarter of fiscal 2019. For the quarter, our women's business was approximately 46% of net sales compared to 46.5% last year and average women's price points decreased about 6% from $38.70 to $36.50.
Our continued focus on timing deliveries to align with the guests shifted shopping patterns for the spring and summer seasons resulted in a positive quarter in several categories of the women's business. For denim, ankle lengths, curvy fits and various patterns and disruptive finishes created excitement within our assortment driving Q2 purchases. Our exclusively developed branded denim as well as our private label denim brands resonated with guest shopping their favorite fits and finding new details to spur additional purchases. Price point denim remains important with retails predominantly around and under $80.
We continue to introduce new brands into our denim roster where we have recently added Wrangler denim in top stores and have expanded our selection with Levi's. As it ties to our initiatives in offering products for everybody, we recently launched a new fall marketing campaign around a denim for everybody message to reinforce and highlight all the different body types and styles that we can fit in our denim and have been encouraged by early feedback to the campaign.
For tops, we were pleased to see so many different looks working. Different sleeve lengths, light to heavier weight fabrics and tanks to sweaters were all well received. Our graphic tee business, fashion sweater mix and bralettes assortment offered a wide breadth of options for guests to pair and wear with their favorite denim or fashion shorts through the quarter.
Just as we are doing the denim, we continue to evolve our brand offering in tops to have nothing for everybody. In addition to key brands like Billabong, White Crow and ThreePeople, we are building upon our private label assortments to expand our selection and offer newness for each and every guest shopping our stores.
Women's shoes and accessories carried nicely through the quarter with new brands and new categories creating excitement and giving guests reasons to add to their cart. In accessories, our specialty bracelets, fragrance, belts and earrings added dollars and units to the category while in shoes, our casual mix of footwear and platform sandals made for easy pairings with the apparel. The team did a nice job of controlling inventory in seasonal categories from spring and summer and we look forward to building from Q2 with opportunities for the fall and holiday months.
For fall, we continue to plan various events aimed at enhancing guest engagement which includes partnering with Urban Cowboy, a boutique bed and breakfast in Nashville Tennessee, to offer the ultimate national experience as well as partnering with the American Cancer Society as the official sponsor of their National Denim Days in October.
谢谢汤姆。我想首先强调本季度女性商品类别的表现。本财政季度女性商品销售额比上一财年增长约0.5％。平均牛仔布价格点从2018财年第二季度的75.85美元降至2019财年第二季度的72.55美元。本季度，我们的女性业务约占净销售额的46％，而去年同期为46.5％，女性平均价格下降从$ 38.70到$ 36.50约为6％。
And with that, I will turn it over to Bob Carlberg, Senior Vice President of Men's Merchandising, to discuss the performance of our men's merchandise category.
有了这个，我将把它交给Men's Merchandising的高级副总裁Bob Carlberg来讨论我们男士商品类别的表现。
Thank you Kelli. Men's merchandise sales for the fiscal quarter were up 2.5% in comparison to the prior year fiscal quarter. Average denim prices increased from $85.20 in the second quarter of fiscal 2018 to $85.60 in the second quarter of fiscal 2019. For the quarter, our men's business was approximately 54% of net sales compared to 53.5% last year and average men's price points decreased approximately 2.5% from $46.55 to $45.45.
I am proud of the way our talented buying team has continued to partner with vendors, design great products, build brands and serve our guest. As a result, the second quarter represented our seventh consecutive quarter of positive comps on the men's side. Strong categories include denim, button fronts, youth and footwear. For the quarter, shorts were the only disappointing category that we are able to adjust both inventory and selection setting us up for next year.
Our private brands continue to be strong with thousands of selection to represent all our lifestyles. Veece is our newest private brand, which were in all stores for the first time in the second quarter. Our traditional West Coast branches showed nice growth with Hurley, Lokai and Fox leading the way. Starting in mid-July, we ran our annual guest loyalty promotion which resulted in another strong finish to the quarter. This event not only rewards our loyal guests with special pricing during the event, but also encourages them to shop fall earlier.
In addition, although we have carried youth product for many years, we started testing the concept of youth-only stores during the quarter with the opening of two pop-up locations in Idaho. Although we are still early in the test, we are pleased with the positive response to the product and the experience. We will continue to monitor the performance of these locations throughout back-to-school and holiday before determining if this is a long-term strategy for our business.
Now turning to results on a combined basis. Accessory sales for the fiscal quarter were up approximately 1.5% against the prior year fiscal quarter, while footwear sales were up about 18%. These two categories accounted for approximately 9.5% and 7.5% respectively of second quarter net sales. This compares to 9.5% and 6.5% for each in the second quarter of fiscal 2018. Average accessory price points were down approximately 13% and average footwear price points were down about 4%. Again, on a combined basis for the quarter, denim accounted for approximately 33% of sales and tops accounted for approximately 34% which compares to 32.5% and 34.5% for each in the second quarter of fiscal 2018. Our private label business continues to grow and represented approximately 33% of our sales for the quarter.
And with that, we welcome your questions. Thank you.
[Operator Instructions]. And our first question will come from the line of Tiffany Kanaga with Deutsche Bank. Please go ahead.
[操作员说明]。 我们的第一个问题将来自Tiffany Kanaga与德意志银行的合作。 请继续。
Hi. Thanks for taking our questions. To follow up on your disclosure last call, about 50% of your sourcing coming from China, would you break down for us what portion of your Chinese product is impacted by List 4 tariffs in September and what percentage comes later in December? Additionally, is there any update around how you are looking to mitigate that impact, whether from price increases or changing your mix or shifting vendors?
你好。 谢谢你提出我们的问题。 为了跟进您的披露最后一次电话会议，大约50％的采购来自中国，您是否会为我们分解您的中国产品的哪一部分受到9月份的List 4关税的影响以及12月份后期的比例是多少？ 此外，您是否有任何关于如何减轻这种影响的更新，无论是来自价格上涨还是改变您的组合或转变供应商？
Good morning. Well, we still see the tariffs having a very small effect on our business throughout this year. We work substantially with our branded vendors that we are not seeing that effect us and we have also worked with a number of our makers over a long period of time and we are seeing very few situations that that will have an effect on this year as we confirm prices, landed prices early on before placing orders. And I think we have a good handle on that throughout this year.
早上好。 那么，我们仍然认为关税对我们今年的业务影响非常小。 我们与我们的品牌供应商进行了大量合作，我们没有看到这对我们产生影响，而且我们也在很长一段时间内与我们的许多制造商合作，我们看到的情况很少会对今年产生影响，因为我们 确认价格，在下订单前提早降价。 而且我认为我们在今年全面掌握了这一点。
All right. If I would ask a follow-up question. Would you dig into the drivers of the steeper decline in merchandise margin in the quarter, which was a bit unusual for you and provide a few comments around where you might expect it to trend in the back-to-school and holiday with them all having been still promotional?
行。 如果我会问一个后续问题。 您是否会深入了解本季度商品保证金下降幅度较大的驱动因素，这对您来说有点不寻常，并提供一些评论，指出您可能期望在回到学校和假期期间与他们一起拥有的趋势 还在促销吗？
Well, I think we were going against some strong margin numbers. I think our margin numbers still have quality to them. And as Tom mentioned in the narrative, our markdowns are down. And we are liking the look of our product coming in. Inventories up 1% total. So we are comfortable with our situation as we go into the second half of the year.
好吧，我认为我们反对一些强劲的利润率。 我认为我们的保证金数字仍然具有质量。 正如汤姆在叙述中提到的那样，我们的降价都在下降。 我们喜欢我们产品的外观。库存总量增长1％。 因此，当我们进入下半年时，我们对自己的情况感到满意。
All right. Thank you so much.
Thank you. And before we go to John Deysher with Pinnacle, a reminder, it's star then one to queue for questions, star then one. John Deysher, your line is open.
谢谢。 在我们和Pinnacle一起去John Deysher之前，提醒一下，然后它就是一个排队等待问题的明星，然后是一个明星。 John Deysher，你的路线是敞开的。
Hello. It looks like you are making solid progress. I have a basic question, which is on the denim side, why is the women's denim under more price pressure than the men's denim? What dynamic is driving that?
你好。 看起来你正在取得坚实的进展。 我有一个基本的问题，就是在牛仔布方面，为什么女士牛仔裤的价格压力比男士牛仔裤更大呢？ 这有什么动力？
I would say it's mostly fashion change over the years. As you remember, several years ago we sold a lot of denim over $100 substantially in the $120 and higher. And as the environment changed on the brands and such, even though we will still have some brands that we continue that we have good niche selling on in different parts of our country, the majority of our new brands and our private label are in the $80 range and below. And so that's the substantial change in the retail prices but it's just kind of the way the trend has gone and what makes sense in the market. But we are happy with our selection, the new fits and the response to our new styles as we go forward. So, as usual, we are looking into the market and trying to deliver what our guests are looking for and what they will love and have as their favorite fits as we go forward. And so it's just a different brand and price point that is working in the market right now.
我想说这些年来主要是时尚变化。 记得，几年前我们在120美元以上的价格中大量卖掉了100多美元的牛仔布。 随着环境在品牌等方面的变化，即使我们仍然有一些品牌继续我们在我们国家的不同地区有良好的利基销售，我们的大多数新品牌和我们的自有品牌都在80美元 范围及以下。 因此，这是零售价格的重大变化，但这只是趋势已经消失的方式以及市场中有意义的方式。 但是我们对我们的选择，新的配合以及对我们新款式的回应感到满意。 所以，像往常一样，我们正在调查市场，并试图提供我们的客人正在寻找的东西，以及他们将会喜欢和拥有的东西，以及我们前进时最喜欢的东西。 因此，它只是一个不同的品牌和价格点，现在正在市场上运作。
All right. I get that from several years ago. But more specifically, quarter-to-date, I mean, why is ladies' denim down 7% and 4% in the most recent quarter whereas men's ASP on jeans is actually up 5%? Is there any specific thing that can explain that?
行。 我从几年前就知道了。 但更具体地说，季度至今，我的意思是，为什么女士牛仔裤在最近一个季度下降了7％和4％，而男士牛仔裤的ASP实际上涨了5％？ 有什么具体的东西可以解释吗？
Well, in the men's, the vendors have remained more consistent. There has been less change in the brands and the price points we are selling. Just a consistency there. So we have held up. I think last year there was a small drop in some of the retails. I don't remember the percent now. But that's kind of leveled out and I would guess we would see the men's continuing to be consistent with past retails as we go forward. The ladies, through the second half, it's still possible there could be a low single digit decline at retail prices. But as I say, we think our ladies' denim presentation is working well and feel good about it as we go forward.
嗯，在男性中，供应商保持更加一致。 我们销售的品牌和价格点变化较小。 只是一致性。 所以我们坚持了下来。 我认为去年一些零售业略有下降。 我现在不记得这个百分比了。 但是那种情况已经趋于平稳，我猜我们会看到随着我们向前发展，这些人会继续与过去的零售保持一致。 女士们，到下半年，零售价格仍有可能出现单位数下降。 但正如我所说，我们认为我们的女士牛仔布演示工作得很好，并且在我们前进的过程中感觉良好。
Okay. Thank you.
Thanks for asking.
[Operator Instructions]. Allowing time for participants to queue up, there are no questions at this time.
If there are no questions, we can wrap up the call so hope everyone enjoys the rest of the day and has a wonderful weekend. Thanks for joining us today.
Then ladies and gentlemen, this conference will be available for replay after 11:00 AM Central Time today running through September 6 at midnight. You may access the AT&T replay system by dialing the numbers 1-800-475-6701 or 1-320-365-3844 and entering the access code 470702. Those numbers again 1-800-475-6701 of 1-320-365-3844 with access code 470702. That does conclude our conference for today. Thank you for your participation and for using AT&T TeleConference Services. You may now disconnect.
女士们，先生们，这次会议将在中部时间上午11:00之后重播，今天将持续到9月6日午夜。 您可以拨打1-800-475-6701或1-320-365-3844并输入访问代码470702来访问AT＆T重放系统。这些号码再次为1-2000-475-6701 1-320-365- 3844，访问代码470702.这确实结束了我们今天的会议。 感谢您的参与和使用AT＆T TeleConference Services。 您现在可以断开连接。
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