The Buckle, Inc. (NYSE:BKE) Q3 2024 Earnings Call Transcript

The Buckle, Inc. (NYSE:BKE) Q3 2024 Earnings Call Transcript November 22, 2024

The Buckle, Inc. beats earnings expectations. Reported EPS is $0.88, expectations were $0.84.

Operator: Good morning. Thank you for standing by, and welcome to Buckle’s Third Quarter Earnings Release Webcast. As a reminder, all participants are currently in listen-only mode. A question-and-answer session will be conducted following the company’s prepared remarks with instructions given at that time. 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; Adam Akerson, Vice President of Finance and Corporate Controller; and Brady Fritz, Senior Vice President, General Counsel and Corporate Secretary. As they review operating results, 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 risk and uncertainties and are subject to be based on change 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 company’s filings with 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 expressed written consent. Any unauthorized reproductions or recordings of this call should not be relied upon as the information may be inaccurate. As a reminder, today’s webcast is being recorded. And now, I would like to turn the conference over to your host, Tom Heacock.

Thomas Heacock: Good morning, and thanks for joining us this morning. Our November 22, 2024 press release reported that net income for the 13 week third quarter, which ended November 2, 2024, was $44.2 million, or $0.88 per share on a diluted basis compared to net income of $51.8 million or $1.04 per share on a diluted basis for the prior year 13 week third quarter that ended October 28, 2023. Year-to-date, net income for the 39 week period ended November 2, 2024 was $118.3 million, or $2.35 per share on a diluted basis, which compares to net income of $140.3 million, or $2.81 per share on a diluted basis for the prior year 39 week period ended October 28, 2023. Net sales for the 13 week third quarter decreased 3.2% to $293.6 million compared to net sales of $303.5 million for the prior year 13 week third quarter.

Comparable store sales for the 13 week fiscal quarter decreased 0.7% in comparison to the same 13 week period a year ago, and our online sales increased 1.1% to $46.6 million for the 13 week fiscal quarter, which compares to $46.1 million for the prior year 13 week fiscal quarter. Compared to the same 13 weeks a year ago, our online sales increased 1.7%. Year-to-date net sales decreased 4.6% to $838.5 million compared to net sales of $878.7 million for the prior year 39 week fiscal period. Comparable store sales for the year-to-date period decreased 5.4% in comparison to the same 39 week period in the prior year, and our online sales decreased 9.2% to $128 million for the year-to-date period, which compares to $141 million for the prior year 39 week fiscal period.

Compared to the same 39 weeks a year ago, our online sales decreased 8.9%. For the quarter, UPTs decreased approximately 1%, the average unit retail increased approximately 1.5% and the average transaction value increased about 0.5%. Year-to-date, UPTs decreased approximately 2.5%, the average unit retail increased approximately 3.5% and the average transaction value increased approximately 1%. Gross margin for the quarter was 47.7%, down 80 basis points from 48.5% in the third quarter of 2023, with the current quarter decline being the result of a 100 basis point decrease in occupancy — or increase in occupancy costs, along with a 35 basis point increase in distribution and buying costs, which were partially offset by a 55 basis point improvement in merchandise margins.

Year-to-date gross margin was 46.9%, also down 80 basis points from 47.7% in the prior year. The year-to-date decline was the result of a 110 basis point increase in occupancy costs, along with a 25 basis point increase in distribution and buying costs, which were partially offset by a 55 basis point improvement in merchandise margins. Selling, general and administrative expenses for the quarter were 29.1% of net sales compared to 27.4% for the third quarter last year. And for the year-to-date, SG&A was 29.6% of net sales compared to 27.8% for the same period last year. The third quarter increase was due to a 90 basis point increase in store labor related expenses, a 35 basis point increase related to digital commerce investments, a 30 basis point increase in G&A salaries and a 50 basis point increase in other SG&A expense categories.

And these increases were partially offset by a 35 basis point decrease in incentive compensation accruals. Our operating margin for the quarter was 18.6% compared to 21.1% for the third quarter of fiscal 2023. And for the year-to-date period, our operating margin was 17.3% compared to 19.9% 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%, bringing third quarter net income to $44.2 million for fiscal 2024 compared to $51.8 million for fiscal 2023. Income tax expense as a percentage of pre-tax net income for both the current and prior year year-to-date periods was also 24.5%, bringing year-to-date net income to $118.3 million for fiscal 2024 compared to $140.3 million for fiscal 2023.

Our press release also included a balance sheet as of November 2, 2024, which included the following: inventory of $149.4 million which was down 1.9% from the same time a year ago and $352.7 million of total cash and investments. We ended the quarter with $143 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $10.2 million and depreciation expense was $5.5 million. For the year-to-date period, capital expenditures were $32.5 million and depreciation expense was $16.6 million. Year-to-date capital spending is broken down as follows: $31.7 million for new store construction, store remodels and technology upgrades and $0.8 million for capital spending at the corporate headquarters and distribution center.

During the quarter, we opened five new stores and completed one full remodel, which brings our year-to-date counts to seven new stores, 13 full remodels and six store closures. For the remainder of the year, we plan on opening one additional new store and completing seven additional full remodel projects, six of which will be relocations into new outdoor shopping centers. Buckle ended the quarter with 445 retail stores in 42 states, which compares to 443 stores in 42 states at the end of the third quarter of fiscal 2023. And now, I’ll turn it over to Adam Akerson as President of Finance.

Adam Akerson: Thanks, Tom, and good morning. Let me start by saying that we are pleased with the performance of the business during the quarter, especially, considering the unseasonably warm start to the fall selling season across much of the country. Our women’s merchandise sales for the quarter were down about 0.5% against the prior year fiscal quarter and represented approximately 47% of sales. On a 13 week comparable basis, women’s merchandise sales increased approximately 3%. Highlighting the women’s growth for the quarter was a 9% increase in denim. The strength in women’s denim was most notable in our private brands, with private label denim growing mid-teens. Average denim price points increased from $79.50 in the third quarter of fiscal 2023 to $81.15 in the third quarter of fiscal 2024, while average overall price points increased about 1% from $49.35 to $49.95.

During the quarter, our women’s business also saw nice increases in our knit tops, accessories and fashion bottoms. On the men’s side, merchandise sales for the quarter were down about 5.5% against the prior year fiscal quarter, representing approximately 53% of total sales. On a 13 week comparable basis, men’s merchandise sales were down approximately 2.5%. Our men’s business for the quarter was more impacted by warmer temperatures with a slower transition into cold weather categories. We continue to be pleased with the performance of short sleeve and graphic tees, along with our great assortment of hats, fragrance and other accessories. While overall denim on the men’s side was down about 1%, private label denim grew low-single digits. Average denim price points increased from $87.95 in the third quarter of fiscal ’23 to $88.10 in the third quarter of fiscal ’24.

For the quarter, overall average men’s price points increased approximately 2.5% from $52.85 to $54.30. On a combined basis, accessory sales for the 13 week quarter were up approximately 3% against the prior year 13 week comparable period, while footwear sales were down about 17%. These two categories accounted for approximately 10% and 5%, respectively, of third quarter net sales, which compares to 10% and 6% for each in the third quarter of fiscal ’23. For the quarter, average accessory price points were down slightly, while average footwear price points were up about 7%. Also on a combined basis, our youth business had a strong back-to-school selling season. Total youth sales increased approximately 2.5%, with strong performance in denim and graphics.

For the quarter, denim accounted for approximately 46% of sales and tops accounted for approximately 29.5%, which compares to 43.5% and 30.5% for each in the third quarter of fiscal ’23. Driven by the growth in private label denim, we continue to increase our private label penetration during the quarter, with private label representing 48.5% of sales versus 47% in the third quarter of 2023. And as Tom mentioned in his remarks, we continue to make investments in our digital channels during the quarter. We are excited to see these investments starting to impact the guest experience, along with several key metrics across the e-commerce channel, with a return to growth for the quarter. And with that, we welcome your questions.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Mauricio Serna. You are now able to unmute yourself.

Mauricio Serna: Great. Good morning. It’s Mauricio Serna from UBS Research. Thanks for taking my question. Sorry, I think I missed this part when you were talking about the gross margin drivers. I think, I heard that you mentioned the merchandise margins were up 55 basis points year-over-year. And I think that’s a bit of a deceleration compared to what you had seen in the second quarter. So maybe first, I wanted to make sure that was the number, and maybe you could elaborate a little bit more on what drove that slowdown in terms of the merchandise margin? And also, I guess, that thing, it implies the buying occupancy and distribution costs, deleverage was a little bit higher than the prior quarter. So yeah, a little bit of detail behind that will be very helpful. Thank you.

Thomas Heacock: Thank you, Mauricio. Good morning. Just walking through the numbers for gross margin for the quarter, it was 100 basis points of increase in occupancy costs, 35 basis points of increase in distribution and buying, and then that was offset by 55 basis points of improvement in merchandise margins. And on the merchandise margin side, I mean, really, that number is consistent both quarter and year-to-date. So similar to the trend that we’ve seen through the first part of the year. Comparisons are a little bit different for each of the quarters last year. So I think that’s a big driver if it did decelerate from Q2. And really, the drivers of the growth there are similar to what it’s been year-to-date as well that growth in private label, I mean really strong trends with our private label denim brands, given that private label up to 48.5% has been a big driver of margin improvements and then also a mix shift.

Footwear’s a little bit lower margin categories. So as we’ve — and that’s a smaller part of our business that’s been accretive to margins. I know Dennis has more to add, but those are the primary drivers.

Dennis Nelson: Nothing to add.

Mauricio Serna: Thank you.

Operator: [Operator Instructions] Currently, there are no further questions in the queue. Mauricio, I see your raise your hand.

Mauricio Serna: Yes. Thank you. I just had a follow-up question on the store count. I think you — just want to make sure I got this right. At the end the quarter with 445 stores, and you plan to open one. So I think that’s from a net store opening for the year, that will take you to two openings? I just was wondering like how are you thinking about expansion in terms of like net store additions over the next couple of years just given where the retail landscape is right now? Thank you.

Dennis Nelson: Good morning. We are estimating seven or eight new stores next year. And we have some situations where there will be some store closings, so best guess at the moment would be net two or three added over 2025. And we plan to relocate and remodel probably another dozen stores this next year, and also we’ll continue to have smaller updates and remodels in probably another 12 to 15 stores next year as well.

Mauricio Serna: Understood. Thank you so much.

Dennis Nelson: Thank you.

Operator: [Operator Instructions] And now we have a question from Nancy. You are now able to unmute yourself.

Nancy Frohna: Good morning. Quick question on the remodels. What kind of lift are you seeing or what kind of benefit are you seeing that you can discuss post remodel and sort of, how that — the pace at which you’re seeing, any kind of change in sales?

Dennis Nelson: Thank you, Nancy. It’s a little difficult just to give a set number. We have several stores that are performing very well and just need an update to continue their performance on the what we call open store remodels to change out counter and fresh in the store. So kind of based on previous experience, it could be low double-digits, give or take. When we move from an existing mall to an outdoor power center, we could see anywhere from low double-digits or better. And here again, it kind of depends. We have a lot of these stores that we’re putting in better positions for the future, although, they are performing well presently. So there’s no real set number that I could give you across the board.

Nancy Frohna: Okay. Thank you.

Dennis Nelson: Thank you.

Operator: There are no further questions in the queue. [Operator Instructions] I see another question from Nancy.

Nancy Frohna: I think that might be a mistake. I didn’t — I don’t think I raised my hand, but…

Operator: Okay. Sorry about that. I’ll lower your hand for you. Sorry about that.

Nancy Frohna: No worries. Appreciate it.

Thomas Heacock: If there are no further questions, we can conclude the call early today. Thank you, everybody for participating and enjoy the weekend and have a great holiday next week.