Buckle Inc. (BKE) Q4 2020 Earnings Call Transcript

Buckle Inc. (NYSE: BKE) Q4 2020 earnings call dated Mar. 12, 2021.

Corporate Participants:

Dennis H. Nelson — President and Chief Executive Officer

Thomas B. Heacock — Senior Vice President of Finance, Treasurer, Chief Financial Officer

Kelli D. Molczyk — Vice President of Women’s Merchandising

Robert M. Carlberg — Senior Vice President of Men’s Merchandising

Analysts:

Steve Marotta — CL King & Associates — Analyst

Jon Braatz — Kansas City Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to The Buckle’s Fourth Quarter Earnings Release. [Operator Instructions]

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 fourth quarter, which ended January 30, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following safe harbor statement which is 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 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 the calls should not be relied upon as the information may be inaccurate.

With that, I’ll turn the call over to Mr. Dennis Nelson. Please go ahead, sir.

Dennis H. Nelson — President and Chief Executive Officer

Good morning and thank you all for joining us.

I want to start by expressing my sincere gratitude to all our teammates and leaders throughout the country. I’m proud of the way we came together through such a difficult year. Despite all the challenges, we managed to keep our guests and teams safe, continued delivering exciting new product, and made good on our promise to provide the most enjoyable shopping experience possible. Of course, we did not do this alone. I also want to thank our vendor partners who worked with us throughout the past year to adjust, move or expedite orders to allow us for a full and fresh product presentation in each store. I greatly appreciate your continued partnership and look forward to 2021 and beyond.

And to our guests, thank you for your continued trust and loyalty.

Finishing 2020 with net sales growth is incredible and is not something I thought possible this time a year ago. I am excited about the strong response both in-store and online during the back half of the year, which could not have been achieved without the relentless focus and dedication of our talented teams in the stores and at our home office. The growth and progress we made despite such a challenging year has me optimistic about our ability to capitalize on the opportunities ahead.

I will now turn it over to our CFO, Tom Heacock.

Thomas B. Heacock — Senior Vice President of Finance, Treasurer, Chief Financial Officer

Good morning and thanks for joining us.

Our March 12, 2021 press release reported a net income for the 13-week fourth quarter ended January 30, 2021, was $65.6 million or $1.33 per share on a diluted basis compared to net income of $47 million or $0.96 per share on a diluted basis for the prior year 13-week fourth quarter which ended February 1, 2020. Net income for the 52-week fiscal year ended January 30, 2021 was one $130.1 million or $2.66 per share on a diluted basis compared to net income of $104.4 million or $2.14 per share on a diluted basis for the prior year 52-week period ended February 1, 2020.

Net sales for the 13-week fourth quarter increased 17.7% to $318.8 million compared to net sales of $271 million for the prior year 13-week fourth quarter. Comparable store sales for the quarter increased 18% in comparison to the same 13-week period in the prior year and our online sales increased 81.5% to $66.2 million. Net sales for the 52-week fiscal year increased 0.1% to $901.3 million compared to net sales of $900.3 million for the prior year 52-week fiscal year. Comparable store sales for the year were up 0.4% in comparison to the same 52-week period in the prior year and our online sales increased 72% to $190.6 million.

For the quarter, UPTs decreased approximately 0.5%, the average unit retail increased approximately 2.5% and the average transaction value increased approximately 2%. Year-to-date, UPTs decreased approximately 0.5%, the average unit retail increased approximately 2.5% and the average transaction value increased approximately 2.5%. Gross margin for the quarter was 51.3%, up 390 basis points from 47.4% in the prior-year fourth quarter. The year-over-year increase was the result of 120 basis point improvement in merchandise margins and 270 basis points of leverage occupancy, buying, and distribution costs, given the strong top line performance for the quarter.

For the year, gross margin was 44.5%, up 260 basis points from 41.9% for the prior year. The year-over-year increase was the result of 140 basis point improvement in merchandise margins, a 95 basis point reduction in occupancy costs and a 25 basis point reduction in buying and distribution costs.

Selling, general and administrative expenses for the quarter were 24.8% of net sales compared to 25.3% for the same period a year ago. The year-over-year reduction is the result of 135 basis point improvement in store labor-related expenses and 135 basis point reduction across several other SG&A expenses, which includes health insurance and other benefit-related costs as well as travel spend. These savings were partially offset by an 80 basis point increase in shipping costs due to our continued strong e-commerce performance and 140 basis point increase related to incentive compensation accruals. SG&A expenses for the year-to-date period were 25.8% of net sales compared to 27.3% for the same period a year ago. The year-over-year reduction is the result of a 240 basis point improvement in store labor-related expenses and 100 basis point reduction across several other SG&A expenses, which again includes health insurance and other benefit-related costs as well as travel spend. These savings were partially offset by 100 basis point increase in shipping costs due to our strong e-commerce performance and a 90 basis point increase related to incentive compensation accruals.

Our operating margin for the quarter was 26.5% compared to 22.1% for the fourth quarter of fiscal 2019. And for the year-to-date period, our operating margin was 18.7% compared to 14.6% for the same period last year. Other income for the quarter was $0.9 million compared to $1.8 million for the fourth quarter of fiscal 2019 and other income for the year-to-date period was $2.9 million compared to $6.2 million in the prior year. Income tax expense as a percentage of pre-tax net income for the quarter was 23.2% compared to 23.8% for the fourth quarter of fiscal 2019, bringing fourth quarter net income to $65.6 million for fiscal 2020 compared to $47 million in fiscal 2019.

For the full year, income tax expense was 23.9% of pre-tax net income compared to 24.2% in 2019, bringing year-to-date net income to $130.1 million for fiscal 2020 versus $104.4 million for fiscal 2019.

Our press release also included a balance sheet as of January 30, 2021 which included the following; inventory of $101.1 million which was down approximately 16.7% from inventory of $121.3 million as of February 1, 2020, and total cash and investments of $340.5 million which was after payment of $128.5 million in dividends during the year and compares to $249.4 million at the end of fiscal 2019.

We ended the quarter with $100.4 million [Phonetic] in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $3 million and depreciation expense was $5.2 million. For the year-to-date period, capital expenditures were $7.7 million and depreciation expense was $20.9 million. Year-to-date capital spending is broken down as follows: $5.5 million for new store construction, store remodels and technology upgrades; and $2.2 million for capital spending at the corporate headquarters and distribution center.

During the quarter we completed one full remodel and closed three stores, which brings our full-year count to three new stores, four full remodels, and eight store closures. We also closed one additional store right after the end of the fiscal year. For fiscal 2021, we currently plan on opening one new Youth store and completing between eight and 12 full remodeling projects. Based on current store plans, we expect our capital expenditures to be in the range of $10 million to $15 million, which includes both planned store projects and IT investments. Buckle with 443 retail stores in 42 states compared to 448 stores in 42 states at the end of fiscal 2019.

And now, I will turn it over to Kelli Molczyk, Vice President of Women’s Merchandising.

Kelli D. Molczyk — 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 20% against the prior-year fiscal quarter. For the quarter, our women’s business was approximately 44.5% of net sales compared to 43.5% in the prior year. Average denim price points decreased from $76 in the fourth quarter of fiscal 2019 to $75.20 in the fourth quarter of fiscal 2020, while overall women’s price points increased about 5% from $43.50 to $45.65.

Q4 was an exciting time for our women’s business with casual wear categories of denim, soft and simplified knits, sweaters, loungewear, and shoes driving our growth. For denim, we continue to see a nice response to our private label and exclusives to Buckle-branded mix with strength across a wide variety of bottom openings, prices, and brands. The team continues to do a great job developing and redeveloping a mix of looks, finishes, and fits that resonate with a broad range of guests as we continue to evolve our fit for everybody focus.

Comfort and casual tops, loungewear, and fashion sweaters paired well with the success we had in denim and in our branded casual shoe and boot categories. In accessories, great giftables such as fragrance, hats, bags and belts led the way. We expanded our Youth business to more doors during the quarter and continue to see a nice growth in our youth denim and top categories. Exclusive products developed for our younger guest keeps our mix very different and aligns nicely with what mom and dad may also be buying within our stores.

Congestion at the ports impacted the timing of product flows throughout the quarter. However, I’m proud of the way our team continued delivering new and exciting products through the holiday season and into the New Year. We ended the year in a comfortable inventory position with reduced markdowns, resulting in strong margins and leaving us in a good position moving into 2021.

And with that, I’ll turn it over to Bob Carlberg, Senior Vice President of Men’s Merchandising to discuss the performance of our men’s merchandise category.

Robert M. Carlberg — Senior Vice President of Men’s Merchandising

Thank you, Kelli.

Men’s merchandise sales for the fiscal quarter were up 14.5% in comparison to the prior year fiscal quarter. For the quarter, our men’s business was approximately 55.5% of net sales compared to 56.5% in the prior year. Average denim price points increased from $82.80 in the fourth quarter of fiscal 2019 to $83.15 in the fourth quarter of fiscal 2020, while overall men’s price points decreased about 1% from $51.60 to $50.95. Men’s had a strong Q4; denim, knits, accessories, footwear and youth all showed nice growth over last year. Inventories are in great shape to maintain our low markdown cadence. Sweaters and outerwear in particular were well managed and set up for us to be almost all fresh for the fall and holiday ’21.

In denim, BKE, Rock, Salvage and street denim led the way. Our street denim provided fresh looks with color and it’s drawing a new audience to our stores. Knits were led by our graphic tees and hoods, both having strong newness and great balance across the brand. I’d like to echo Kelli’s comments on youth as boys also expanded stores and selection, starting to have this addition of product to capture a younger audience and help our loyal guests outfit their children as well as themselves. We had a nice response to our spring/summer deliveries from both our guests and teammates. All teams did an amazing job to finish out the year, but I want to say thank you to our men’s teams as they did an extraordinary job of managing the challenges of COVID and related transportation issues.

Now, turning to results on a combined basis, accessory sales for the fiscal quarter were up approximately 14% against the prior-year fiscal quarter and footwear sales were up about 58%. These two categories accounted for approximately 9% and 11.5% respectively of fourth quarter net sales. This compares to 9.5% and 8.5% for each in the fourth quarter of fiscal 2019. Average accessory price points were up approximately 0.5%, while average footwear price points were down about 3.5%. Again, on a combined basis for the quarter, denim accounted for approximately 42% of sales and tops accounted for approximately 29.5%. This compares to 44% and 31.5% for each in the fourth quarter of fiscal 2019. Our private label business represented approximately 43% of sales for the quarter and 39.5% for the year.

With that, we welcome your questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions] And first with the line of Steve Marotta with CL King & Associates. Please go ahead.

Steve Marotta — CL King & Associates — Analyst

Good morning, everybody. Just wanted to ask a little bit about inventory levels being down 17%. Can you talk a little bit about the aggregate level of port issues of that you experienced in the quarter that you might still be experiencing? What do you think inventory levels would have been otherwise if you had perceived the items in — on a more timely basis towards your plan?

Dennis H. Nelson — President and Chief Executive Officer

Good morning, Steve. Thank you for your question. We’re ballparking that, on average, we’re about two weeks late on receiving goods, give or take on different categories which would have helped the inventory level at some point, but our response — we’ve been excited about as the response in the stores has kept the sales going and the pressure on catching up on inventory, but it’s a good situation to have and we think the teams are approaching it very well and it’s making for nice turns and we think we’ll be able to catch up on that over the next couple of months.

Steve Marotta — CL King & Associates — Analyst

Thank you. And the last question I had has to do with rent abatements or deferrals or our [Phonetic] reductions. Can you talk a little bit about how that may have affected and permanently altered your expense structure to date? Thank you.

Dennis H. Nelson — President and Chief Executive Officer

Most of the deferrals that we worked with the landlords on have been paid now. There might be a little bit left over the next few months, but we appreciated working with that early on when we didn’t have any idea what was going on. We are having a reduction in rents overall in the Company and we’re also very focused on evaluating our locations and the strategy of where do we want to have our top stores. Do we keep them in the malls, do we reposition into other centers or standalones. And so, we’ve been very busy over the last year and a half of reviewing this and have continued to do so and we think there’s a lot of good opportunities that way to update some of our stores and improve the locations we’re in.

Steve Marotta — CL King & Associates — Analyst

It’s helpful. Thank you.

Dennis H. Nelson — President and Chief Executive Officer

Yes.

Operator

[Operator Instructions] And we do have a question from Jon Braatz with Kansas City Capital. Please go ahead.

Jon Braatz — Kansas City Capital — Analyst

Good morning, everyone. Dennis, obviously, 2020 was an odd year. Good to get it behind us, but when you look at your — overall, your cost structure going forward, how do you think that compares with where you were in 2019? Obviously, your mix has changed a little bit and you got some rent relief and so on, but in aggregate, are you operating — will you be operating at a lower cost structure?

Dennis H. Nelson — President and Chief Executive Officer

Yes, I think we’ve made some improvements and progress on some of our processes and structure, which will improve our cost basis. Travel will probably — we’ll have that expense or maybe the health insurance where there was less this past year be maybe more normalized, although there will probably be less travel than a couple years ago. So, we’re very focused on constant improvement among our teams and what we’re doing and I think this past year just may be sped up a few of those processes. So, we’re optimistic about controlling expenses and growing our business as we move forward.

Jon Braatz — Kansas City Capital — Analyst

Okay. What’s your thoughts on store labor? I know you — when you reopened, you had a lower number of employees than you typically do, but are you back to sort of a normal level of employee compensation at the store level?

Dennis H. Nelson — President and Chief Executive Officer

I would say in several of our stores, they are closer to the level they were. Although, even the year before we had improved on our payroll in the stores. The one big factor that’s been helpful and we don’t see changing much is the new hours at most of the stores where they used to be 9:00 or 10:00 in the morning till 9:00 at night and such. A lot now open at 10:00 or 11:00 in the morning and close at 7:00 or 8:00 at night. So, that’s been a benefit that way too.

Jon Braatz — Kansas City Capital — Analyst

Okay, all right. And lastly, February was a very difficult weather month, to say the least. Any thoughts on how weather impacted your February numbers?

Dennis H. Nelson — President and Chief Executive Officer

I don’t have any specific details, Jon, but yes, with all our stores in Texas, Oklahoma, Arkansas, as well as a lot of the Southeast part were definitely affected and challenged the stores there for a period of time.

Jon Braatz — Kansas City Capital — Analyst

Okay. All right, thank you very much.

Dennis H. Nelson — President and Chief Executive Officer

Thank you.

Operator

And allowing a few moments, Mr. Nelson, no further questions coming in.

Dennis H. Nelson — President and Chief Executive Officer

Tom?

Thomas B. Heacock — Senior Vice President of Finance, Treasurer, Chief Financial Officer

If there are no further questions, we’ll wrap up the call and thank everyone for participating and everyone have a wonderful day and wonderful weekend.

Operator

[Operator Closing Remarks]