Q2 2020 Buckle Inc Earnings Call
Ladies and gentlemen, thank you for your patience and holding and welcome to the second quarter earnings release call.
Members of Buckles management on the call today are Dennis Nelson, President and CEO, Tom Heacock, Senior Vice President 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 a review the operating results for the second quarter, which ended August 1st 2020, they would like to reiterate their policy of not giving future sales or earnings guidance and having the following the safe Harbor statement.
Safe Harbor statement under the private Securities Litigation Reform Act of 1995, all forward looking statements made by the company involved materials risks and uncertainties and are subject to change based on factors, which maybe beyond the company's control accordingly, the company's future performance and financial results may differ.
[noise] materially from those expressed or implied in any such forward looking statements such factors include but are not limited to.
I apologize [laughter] 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 there in will not be realized. Additionally, the company does not authorized the reproduction or dissemination of transcripts or audio.
Recordings of the company's quarterly.
Conference calls without <unk> expressed written consent.
Any authorize unauthorized reproductions or recordings of the calls should not be relied upon as the information maybe inaccurate I would now like to turn the call over to your host Tom Heacock. Please go ahead.
Good morning, and thanks for joining us this morning.
Our August 21st 2020 press release reported that net income for the 13 weeks second quarter ended August 1st 2020, or 34.7 million or 71 cents per share on a diluted basis, which compares to net income of 16.4 million or 34 cents per share on the diluted basis for the.
Our year 13 weeks second quarter, which ended August 32019.
Year to date net income for the 26 week period ended August 1st 2020.
Was 22.9 million or 47 cents per share on a diluted basis compared net income of 31.5 million or 65 cents per share on a diluted basis for the prior year 26 week period ended August Threerd 2019.
Net sales for the 13 week second quarter increased 6%.
216 million compared to net sales of 203.8 million for the prior year 13 weeks second quarter.
Online sales for the quarter increased 99% the 46 million compared to net sales of 23.1 million for the prior year 13 week fiscal period.
Year to date net sales decreased 18.2% to 331.4 million for the 26 week fiscal period ended August 1st 2020, compared to net sales of 405.1 million for the prior year 26 week fiscal period ended August Threerd 2019.
Online sales for the year to date period increased 64.3%.
78.1 million compared to net sales of 47, and a half million for the prior year 26 week fiscal period.
For the quarter, you PTC increased approximately 3.5%.
The average unit retail increased approximately 3% and the average transaction value increased approximately 7%.
Year to date, you Pts increased approximately 3%.
The average unit retail increased approximately 1%.
The average transaction value increased approximately 3.5%.
Gross margin for the quarter was 43.2%.
From 38.6% and the prior year second quarter.
The year over year increase was the result of 190 basis point improvement in merchandise margins and 270 basis points of leveraged occupancy buying and distribution costs.
Given the strong topline performance for the period the stores were opened and strong online sales throughout the quarter.
For the year to date period gross margin was 36.3% down from 38.4% for the same period last year.
The year over year decrease was the result of de leverage occupancy buying and distribution costs, partially offset by a 90 basis point improvement in merchandise margins.
That's DNA expenses for the quarter were 22.1% of net sales compared to 29% for the same period a year ago.
On a dollar basis SGN, a declined 11.2 million from 59.1 million in the second quarter fiscal 2019, the $47.9 million for the second quarter fiscal 2020.
This decline was the result of a 12 million dollar reduction and compensation and benefit related expenses, along with reductions in certain other operating expenses, including travel expenses and store supplies.
These reductions were partially offset by increased shipping costs, resulting from our strong online growth.
That's gionee for the year to date period was 27.4% on net sales.
Compared to 28.9% for the same period a year ago.
On a dollar basis best Gionee for the year to date period declined $26.1 million from 117 million in fiscal 2019 90.9 million for fiscal 2020.
And the decline was the result of a $26 million reduction and compensation and benefit related expenses, along with reductions in certain other operating expenses and was partially offset by increased freight costs, resulting from our strong E com sales.
Our operating margin for the quarter was 21.1% compared to 9.6% for the second quarter of fiscal 2019.
For the year to date period, our operating margin was 8.9% compared to 9.5% for the same period last year.
Other income for the quarter was 0.4 million compared to $2.1 million for the second quarter of 2019 and other income for the year to date period was $1 million compared to $3.3 million in the prior year.
Income tax expense as a percentage of pretax net income for both the current and prior year fiscal quarter was 24.5%, bringing second quarter net income to 34.7 million for fiscal 2020 compared to $16.4 million for fiscal 2019.
Income tax expense as a percentage of net income for both the current and prior year year to date periods was also 24.5% bringing year to date net income to 22.9 million for 2020.
Fair to 31, and a half million for fiscal 2019.
Our press release also included a balance sheet as of August Onest 2020, which included the following inventory of 116.5 million, which was down approximately 10% from inventory of 129.1 million as of August 3rd 2019, and total cash and investments of 294.9.
Which compares to 249.4 million at the end of fiscal 2019, and 245.6 million as of August Threerd 2019.
We ended the quarter with 106.1 million and fixed assets net of accumulated depreciation.
Our capital expenditures for the quarter were 1.3 million and depreciation expense was 5.5 million.
For the year to date period capital expenditures were three and a half million and depreciation expense was $11 million.
Year to date capital spending is broken down as follows 2.6 million per store Remodels and technology upgrades.
Your point $9 million for capital spending at the corporate headquarters and distribution Center.
During the quarter, we opened two new buckle, you stores and one new full line store and we also closed three locations, which brings our year to date count to three new stores, one full remodel on five store closures for the remainder of the year. We plan on completing three additional full store remodels.
Based on current store plans, we still expect our capital expenditures to be in the range of $7 million to $10 million, which includes both planned store project and IP investments.
Buckle ended the quarter with 446 retail stores and 42 states compared with 449 stores and 42 states at the end of the second quarter fiscal 2019.
Now I'll turn the call over to Kelli Molczyk, Vice President of women's merchandising.
Thanks, Tom.
I can start by highlighting the performance of our women's merchandise categories for the quarter women's merchandise sales to the fiscal quarter were up approximately 6% against the prior year fiscal quarter average denim price points increased from $72.55 in the second quarter fiscal 2019 to 70.
The $4.60 in the second quarter fiscal 2020.
The quarter, our win business with approximately 46.5% of net sales compared to 46% last year, an average women's price points increased about 6% from $36.50 to $38.65.
For the quarter the women's business saw a nice responses to several key category. Our selection in denim was well received as we continue to evolve the category by building, creating an offering our guests the big inflection in fit finishes bottom openings rises in themes and waist sizes.
Our focus remains on creating denim for every body.
Our private label and exclusive product continues to grow as a larger part of our overall denim business. In addition to denim. We also had a nice response to our selection of short that we expanded throughout the quarter.
As the effect of Covenant mall, we navigated through our on order and adjusted our flow and overall inventory by category as well as made shifts in the type product that we delivered throughout the quarter. We saw favorable response to these changes as comfort fabric.
Thanks styling is silhouette graphic Tees and flip on footwear were drivers of sale.
Continues to be extremely proud of the hard work and dedication our women's 19% in building our business.
All the uncertainties through and around the pandemic. The team did an amazing job managing our inventory, which show the several of our key categories ended the quarter with average price points.
And our markdown position down in generating healthy margin.
Our inventory and then comfortable position, we retain the flexibility to act and react to whats ahead, our focus remains on on trend livable and functional denim friendly products.
With that ill turn it over and above Carlberg senior Vice President of men's merchandise inc. to discuss the performance of our men's merchandise category.
Thanks, Kelly men's merchandise sales for the fiscal quarter were up 5% in comparison to the prior year fiscal quarter average denim price points increase from 80 560 in the second quarter of 2019 to 80 785 in the second quarter of 2020.
For the quarter, our men's business was approximately 53.5% of net sales compared to 54% last year and average men's price points increased approximately 1% from 45 45 to 45 80 as our results reflected buckle managed to the Covance crisis incredibly well the strength of our entire men's team was evident in the way we responded to a challenging an ever changing.
Jewish and.
I have never been more proud of our team we took a planning approach that mitigated risk with respectful of our strong vendor partnerships and still allowed us to provide a strong presentation does we reopened our stores.
This approach also allowed us to maintain our normal low markdown cadence and in the quarter, an excellent inventory position.
Spring summer categories, where especially good throughout the quarter footwear shorts and accessories were standout departments. Overall, there was a large amount of fresh product, including more color in fashion styling.
We are attracting a younger fashion guest as well as taking care of the tried and true buckle guest denim stayed strong as we added more destruction life finishes as well as lightweight and Coolmax fabrics.
Our private brands continue to capture a growing share of our business with BK at the core and each of our private brands attracting a different guest. Additionally, our newest street denim category performed well throughout the quarter.
Now turning to results on a combined basis accessory sales for the fiscal quarter were up approximately 6% against the prior year fiscal quarter, while footwear sales were up about 32%.
These two categories accounted for approximately 10% and 9.5% respectively of the second quarter net sales, which compares to 9.5 and 7.5% for each in the second quarter fiscal 2019.
Average accessory prices were up approximately 4.5% and average footwear price points were up about 0.5%.
Again on a combined basis for the quarter denim accounted for approximately 32% of sales and tops accounted for approximately 13.5%, which compares to 33% and 34% in the second quarter fiscal 2019.
For the quarter, our private label business represented approximately 31% of sales and with that we welcome your questions. Thank you.
Okay.
And ladies and gentlemen, if you would like to ask a question at this time. Please press one then followed by zero.
And our first question comes from Steve Marotta from CL, King and Associates. Please go ahead.
Good morning, everybody congratulations on a terrific quarter given all the pandemic issues can you. Please update us on the online digital infrastructure at this moment in time, where it is what investments you intend to make over the next.
12 months and.
Well those let's start there.
Hey, good morning, Steve Thanks for the question I'll, let Tom.
To answer that one for you.
Thank you Steve Good morning, now, we feel really strong about where we're at with E com and a lot of what we've done we have a really talented team thats that does a lot of the development for our website.
So a lot of a lot of the projects all the things we're doing our internally developed.
One of the big drivers of growth has been ship from store like we talked about we've expanded our online selection of inventory.
Starting in a limited way than the fourth quarter expanded in February and have expanded the even more categories more skews through the first part of the year and that's been a big driver of our growth to be able to.
Offer our in store inventory for sale online for online orders.
Also be able to fill it directly from stores are shipping from our store of directly to guess.
The next iteration of that and we're working on for fall is really than the next expansion of omni channel, allowing guests to buy online pickup in store.
And then offering by it today get it today. So they can jump there their local store buy online and pick it up and covert has really accelerated the demand for a lot of those things and those are things that we had in flight before and have been working on for awhile and are really excited about.
The ship from store that you mentioned first is that now 100% across stores in categories and if not when would you expect it would be.
It's in its in all stores and so we had again and.
Started last fall on a limited basis.
In terms of both stores and categories to test and learn and it's really nice response of those categories. So.
Started expanding its on some nice online growth.
In February before coven, which ship from store and that expanded inventory selection was a big driver of that.
As Weve reopened stores post Covidien again, it seemed really important to have all that inventory available. So it is all stores.
And almost all skews there are there are some requirements I mean or smart about it and making sure now from a margin perspective, we're selling the right product and it makes sense to solve that product from in store.
But it is most product most categories I.
I understand your expense structure, obviously from an S.J. standpoint was down significantly year over year, that's not fall terrifically surprising I think the magnitude was a little bit given the sales were up in the quarter.
I know that you don't give forward guidance, but can you talk a little bit about about what you cut what you would expect to be permanent what you would expect to be more temporary with.
Vacillation and sales associated with the pandemic.
Yes, I mean like you mentioned, we don't give forward guidance. So looking ahead for aster DNA is hard to say.
I would likely likely called out the biggest driver was was compensation and benefits our labor related.
Similar to E com that was a focus especially for store labor going back to the second half of last year and when we saw nice improvements there through both the third and fourth quarter.
Yes, again covance covered lives the big driver of why it was down so much in the second quarter.
We are certainly wouldn't expect that to continue but but a lot of the increase I think it was $12 million totaling total decrease for the quarter.
What was really heavily weighted towards may as stores were closed and we for love. The majority of our teammates and then as we brought those back we saw payrolls bill to where it at the end of July there is still down year over year.
But but obviously not the right. They were earlier in the quarter I think we've learned a lot. The stores are operating a malls are operating with reduced hours.
So we're running with leaner teams in the stores the stores have done an incredible job opening up running really fast working hard taking care of our guests, but but they're operating with leaner meaner teams and I would expect that would continue and we'll continue to focus on payroll, but the magnitude of what it will be for the back half of the year.
I can't really say.
Helpful. Thank you very much.
And ladies and gentlemen, as a reminder, if you would still like to ask a question. Please press one then zero.
And we have another question and that comes from Richard.
Daryl Lee from Longport partners. Please go ahead.
Good morning, do have any feeling that the.
Second quarter sales.
Were held from.
We're catch up from the first quarter.
And then.
Has has August.
Back down again.
Walmart target.
Thanks for the question Richard.
There was probably some pent up demand.
From the first quarter that helped us second quarter.
But I think we have to really give credit to our sales team.
Sure.
Working hard to be first we had to close down but they then prepared for the opening and.
Everybody's hard work and preparation gave us a good start we probably got a little advantage opening before maybe a few of the other retailers.
So that was beneficial.
But I think.
With our sales management team doing a great job, our merchandisers focusing in on the right product for this season and having a great slide selection in the key categories.
We're very beneficial and then.
Support from the home office to help execute everything was great. So.
So thats kind of the issue on the second quarter sales.
And then as Tom mentioned earlier, we do not give forecast for.
Future sales.
Yes.
Back to school is very important a relative to work through other retailers.
Do you did you see any business that were.
New.
You and clearly back to school that you haven't seen before.
I think thats, a little difficult to answer at the moment, where here at schools are opening later in some markets and some are scheduled so.
Hopefully, we'll be able to redo that.
Question at the next earnings call Okay.
Major missed sales there okay. Thank you.
Thank you.
And we have no further questions at this time and as a reminder, if you'd still like to ask a question. Please press one then zero.
We have a question from Jon Braatz from Kansas City Capital. Please go ahead good morning.
Tom a question for you when you look at your cash balances.
How much.
All of those cash balances might there be some rent deferrals and maybe payroll tax deferrals, if you're doing that trying to get a sense of what.
How much you have been able to differ.
Yes, I mean, if you look at payables on the balance sheet is up year over year. The biggest driver there what would be some of the rent deferrals, we havent quantified exactly what that is but but it's.
It's meaningful but not not overly significant to the increase in cash cash balance probably the bigger impact on cash increases year to date in year over year has been.
Not paying dividends, that's been much more meaningful than where appropriate.
Any payroll tax credits or deferrals have been much smaller than both of those.
Work with all our landlords and.
We have as we've mentioned before we have a lot of short term leases.
We've been averaging somewhere around 90 to 100 renewals each year, so that gives us the opportunity to evaluating each.
Location and.
I figured out appropriately. So I think we have a good handle on that and we're continuing to review if we have.
Our stores in the best location for that particular community we're in and.
That's been working well.
Okay Tom.
One follow up when when will the rough deferrals be paid.
Depend on the landlord, but but most of them should be repaid by the end of the year over some of them. We've already started to repay and again, we repaid essentially a four month or rent for April and most of the deferrals were may and June some have been paid back already and some will be paid payback at various points through the rest of year. Okay. Thank you Tom.
Yep.
Okay.
And we have no further questions Mickey right now.
There's no other questions. We can we can wrap it up and hope everyone enjoys the rest today and thanks for participating.
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