The Buckle, Inc. (NYSE:BKE) Q4 2022 Earnings Call Transcript

The Buckle, Inc. (NYSE:BKE) Q4 2022 Earnings Call Transcript March 10, 2023

Operator: Well, good morning, everyone, and thank you for standing by. And welcome to Buckle’s Fourth Quarter Earnings Release Webcast. As a reminder, all participants are currently in a 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 for the fourth quarter, which ended January 28, 2023, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe harbor statements.

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 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 reproductions or recordings of the call should not be relied upon as the information may be inaccurate. And as a reminder, today’s webcast is being recorded. And now, it is my pleasure to turn the webcast over to your host, Dennis Nelson. Dennis, over to you.

Dennis Nelson: Thank you. Good morning and thank you for joining us. I want to start out today’s call by thanking all our talented teammates for their great work over the past year. Coming off our best year ever, we developed plans to keep our momentum going, and you delivered by deepening our relationships with guests while growing the top line, empowering guests to shop however and whenever they want, growing out multi-channel businesses and guests, developing great product assortments, and maintaining a reputation as a denim destination, and optimizing our store base working to make sure we are in the best shopping area in all of our markets. We achieved all of this while keeping our focus on long-term profitability and solid fundamentals.

We ended the year with operating margins of 24.4%, and remain committed to protecting our strong balance sheet, ending the year debt-free and with total cash and investments of $293.7 million. We continued our practice of paying quarterly dividends and also paid a special dividend for the 15th consecutive year. I’m confident our teams have us well-positioned for ongoing success, and am excited about the opportunity to continue servicing our guests in 2023. I will now turn it over to our CFO, Tom Heacock.

Tom Heacock: Good morning, and thanks for being with us. Our March 10, 2023 press release reported that net income for the 13-week fourth quarter, ended January 28, 2023, was $87.8 million or $1.76 per share on a diluted basis compared to net income of $83.9 million or $1.69 per share on a diluted basis for the prior-year 13-week fourth quarter ended January 29, 2022. Net income for the 52-week fiscal year ended January 28, 2023 was $254.6 million or $5.13 per share on a diluted basis, compared to net income of $254.8 million or $5.16 per share on a diluted basis for the prior-year 52-week fiscal year ended January 29, 2022. Net sales for the 13-week fourth quarter increased 5.5% to $401.8 million, compared to net sales of $380.9 million for the prior-year 13-week fourth quarter.

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Comparables to our sales for the quarter increased 4.6% in comparison to the same 13-week period in the prior year, and online sales increased 2.3% to $74.8 million. For the full-year, net sales for the 52-week fiscal year increased 3.9% to $1.345 billion compared to net sales of $1.295 billion for the prior year 52-week fiscal year. Comparables to our sales for the fiscal year were up 3.3% in comparison to same 52-week period in the prior year, and our online sales increased 4.3% to $230.4 million. For the quarter, UPTs decreased approximately 1%, the average unit retail increased approximately 6.5%, and the average transaction value increased about 5.5%. For the full-year, UPTs decreased approximately 1%, the average unit retail increased approximately 4.5%, and the average transaction value increased approximately 4%.

Gross margin for the quarter was 53.0%, down 10 basis points from 53.1% in the fourth quarter of 2021. Our full-year gross margin was 50.3%, also down 10 basis points from 50.4% for the same period last year. Merchandise margins were down about 75 basis points for the quarter and about 45 basis points for the full-year period. Selling, general, and administrative expenses for the quarter were 25.6% of net sales, compared to 24.3% for the fourth quarter of 2021. The fourth quarter increase was primarily due to a 55 basis point increase in store labor-related expenses along with increases in several other SG&A expense categories which had a combined 75 basis point impact. Full-year SG&A was 25.9% of net sales, compared to 24.5% for the same period last year.

And the full-year increase was due to 100 basis point increase in store labor-related expenses along with increases across several other SG&A expense categories, which had a combined 40 basis impact for the full-year. Our operating margin for the quarter was 27.4%, compared to 28.8% for the fourth quarter of fiscal 2021. And for the full-year, our operating margin was 24.4%, compared to 25.9% for the same period last year. Income tax expense as a percentage of pre-tax net income for the quarter was 23% compared to 24.7% for the fourth quarter of fiscal 2021, bringing fourth quarter net income to $87.8 million in 2022, compared to $83.9 million in 2021. For the full-year, income tax expense was 24% of pre-tax net income, compared to 24.6% in 2021, bringing full-year net income to $254.6 million in 2022, compared to $254.8 million in 2021.

Our press release also included a balance sheet, as of January 28, 2023, which included the following. Inventory of $125.1 million, which was up 22.5% year-over-year, but only up approximately 3% compared to inventory of $121.3 million at the end of fiscal 2019. We also ended the year with total cash and investments of $293.7 million, which was after payment of $202.9 million in dividends during the year. We ended the year with $112.4 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $8 million, and depreciation expense was $5.3 million. For the full-year, capital expenditures were $30.4 million, and depreciation expense was $18.9 million. Full-year capital spending was broken down as follows: $29.5 million for new store construction, store remodels, and technology upgrades, and $0.9 million for capital spending at the corporate headquarters and distribution center.

During the quarter, we opened one new store, completed seven full remodels, four of which were relocations into new outdoor shopping centers and closed one store. This brings our full-year 2022 totals to four new stores, 23 full remodels, and three store closures. Of the 23 total remodels during the year, 17 were relocations to new outdoor shopping centers. Current plan for fiscal 2023 includes opening six new stores and completing 12 to 17 full remodeling projects. We have also closed two stores year-to-date with one additional store closing plan for March. Buckle ended the year with 441 retail stores in 42 states compared to a 440 stores in 42 states at the end of fiscal 2021. Now, I will turn it over to Adam Akerson, our Vice President of Finance.

Adam Akerson: Thanks, Tom. Women’s merchandise sales for the quarter were down about a 0.5% against the prior year and represented approximately 42.5% of sales compared to 44.5% in the prior year. Average denim price points increased from $74.45 in the fourth quarter of fiscal €˜21 to $79.75 in the fourth quarter of fiscal €˜22 while overall average women’s price points increased about 5% from $47.90 to $50.30. On the men’s side, merchandise sales for the quarter were up 8.5% against the prior year, representing approximately 57.5% of total sales compared to 55.5% in the prior year. Average denim price points increased from $78.05 in the fourth quarter of fiscal €˜21 to $86.25 in the fourth quarter of fiscal €˜22. For the quarter, overall average men’s price points increased approximately 6.5% from $51.05 to $54.50.

On a combined basis, accessory sales for the quarter were up approximately 15% against the prior year while footwear sales were down about 7%. These two categories accounted for approximately 10.5% and 9%, respectively of fourth quarter net sales, which compares to 9.5% and 10% for each in the fourth quarter of fiscal 2021. For the quarter, average accessory price points were up approximately 9.5% and average footwear price points were down slightly. For the quarter, denim accounted for approximately 41.5% of sales and tops accounted for approximately 30%, which compares to 40.5% and 31.5% for each in the fourth quarter of fiscal €˜21. Our youth business continued to grow nicely during the holiday period posting an up 16.5% on the quarter.

For the year, our youth business grew approximately 27% and represented 3% of total sales. Our buying teams continued to develop and deliver a strong assortment of private label brands. For the quarter, private label stayed consistent with the prior year representing 48% of sales. For the Full-year, our private label selection grew from 42.5% of sales in fiscal €˜21 and 44.5% in fiscal €˜22. We continue to feel good about our inventory position, and we are pleased with the strong full price selling during the quarter. And with that, we welcome your questions. Thank you.

Operator: Well, thank you so much. So, we will hear first from (ph). John, please go ahead. Well, John, we currently can’t hear you. I do see that your microphone is open. So, if you are on your phone or — Just go ahead and say a few words for us. All right, so while we wait for John to work out his audio issues, I’ll go ahead and welcome more questions. And John, I see you are still out there. Go ahead and — can you — let’s see. All right, hearing no response from John, I’ll go ahead and ask everyone once again . Well, we have no questions at this time. I do see that John still wants to ask — Oh, we have a question now from Alan Glenn. Alan, please go ahead with your question.

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Q&A Session

Alan Glenn: Yes, Alan Glenn with Concord & Main. I wondered about the February sales numbers, it showed, I believe, a 6% decline. Do you have any insight into that? Was that just a tough comp from the previous year?

Dennis Nelson: Yes, Alan, I would say that’s the main part of it. We were up, last year, 33%. This year, we were down 6%. Of that $5.4 million that we were down, it was down — $5.2 million of the decrease was in footwear.

Alan Glenn: Okay, thank you.

Dennis Nelson: Yes. And just to add to that, the last year, the footwear category was up 64% in February.

Alan Glenn: Thank you very much.

Dennis Nelson: You’re welcome.

Operator: Great, thank you so much. And we will move on to (ph).

Unidentified Analyst: Hi, can you all hear me?

Operator: We sure can. Please go ahead.

Unidentified Analyst: Terrific, thank you. Thank you for the results. And I may have missed it in the commentary, but in light of — it follows on to the previous question, but how are you thinking about various inventory levels or just consumer caution generally? I’m just wondering how you might characterize what you’re seeing from your customers?

Dennis Nelson: Thank you. Yes, we are — we feel good about our inventory. Our dollars are up more than our — probably because of our Rock Revival, Miss Me inventories are up, where they were down substantially due to deliveries the previous year. Actually, our units are down probably 4% from 2019 from where we are today. So, we’re very comfortable with our inventory, and we feel the new deliveries coming up will continue to create some excitement in our stores.

Unidentified Analyst: That sounds great. And a couple of times you’ve mentioned versus 2019. And I guess just to elaborate on your thoughts, are you figuring that’s sort of how we should view normalized, if you could — not to be cliché, but —

Dennis Nelson: Yes, I mean it’s still been kind of a guideline that some of our investors like to hear about. And so, this will probably be the last comments going from there. Like our e-comm business is up over 100% from 2019, so just shows the growth and the improvement in our business over the last few years.

Unidentified Analyst: All right, thank you.

Operator: So, John, I see that you’re still out there. I see you’re still unmuted. Do you want to go ahead and see if we can hear you, and ask your question? All right, still nothing from (ph). All right, well, there are no further questions. So, I will turn things back to The Buckle team for any closing remarks.

Tom Heacock: Just thank you, everybody, for joining us. And hope you all have a wonderful day. And, John, we wish we would have known what your question was, but we’ll have to get it later. So, thank you, everyone, and enjoy the day.

Operator: Absolutely. And again, everyone, we thank you all for joining us today. And we look forward to seeing you on the next earnings. So, take care in the meantime. Thank you all so much.