Q1 2024 Buckle Inc Earnings Call

Participants

Thomas Heacock; Chief Financial Officer, Senior Vice President - Finance, Treasurer, Director; Buckle Inc

Adam Akerson; Vice President - Finance, Corporate Controller, Assistant Treasurer; Buckle Inc

Dennis Nelson; President, Chief Executive Officer and Director; Buckle Inc

Mauricio Serna

Alan Glenn

Presentation

Operator

Good morning and thank you for standing by and welcome to Buckle's first 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 of 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 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 call should not be relied upon as the information may be inaccurate. As a reminder, today's webcast is being recorded.
And I'd now like to turn the conference over to your host, Tom Heacock.

Thomas Heacock

Good morning and thanks for joining us this morning. Our May 24, 2024 press release reported that net income for the 13-week first quarter ended May 4, 2024 was $34.8 million or $0.69 per share on a diluted basis compared to net income of $42.9 million or $0.86 per share on a diluted basis for the prior year 13-week first quarter, which ended April 29, 2023.
Net sales for the 13-week first quarter decreased 7.2% to $262.5 million compared to net sales of $282.8 million for the prior year 13-week first quarter. Comparable store sales for the 13-week fiscal quarter decreased 9% in comparison to the same 13-week period in the prior year.
And our online sales decreased 13.4% to $44.4 million for the 13-week fiscal quarter this year, compared to $51.3 million for the prior year 13-week fiscal quarter. Compared to the same 13-week period a year ago, online sales were down 13.2%.
For the quarter, UPTs decreased approximately 5.5%. The average unit retail increased approximately 6.5%. And the average transaction value increased about 1%. Gross margin for the quarter was 46%, down 110 basis points from 47.1% for the first quarter of 2023.
The current quarter decline was the result of de-leveraged buying, distribution, and occupancy expenses, partially offset by a 50 basis point improvement in merchandise margins. Selling, general and administrative expenses for the quarter were 29.8% of net sales compared to 28.1% for the first quarter last year.
The first quarter increase was due to a 105 basis point increase in store and labor-related expenses, a 35 basis point increase in expense for accrued PTO, a 30 basis point increase in G&A salaries, a 30 basis point increase in marketing spend and a 30 basis point increase in other SG&A expense categories. And these increases were partially offset by a 40 basis point reduction in incentive compensation accruals and a 20 basis point decrease in e-commerce shipping expenses.
Our operating margin for the quarter was 16.2% compared to 19% for the first quarter of fiscal 2023. Income tax expense as a percentage of pretax net income for both the current and prior year fiscal quarter was 24.5%, bringing first quarter net income to $34.8 million for fiscal 2024, compared to $42.9 million for fiscal 2023.
Our press release also included a balance sheet as of May 4, 2024, which included the following: inventory of $130.7 million, which was down 5.1% from the same time a year ago; and $317.2 million of total cash and investments. We ended the quarter with $132.1 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $10.8 million and depreciation expense was $5.4 million.
First quarter capital spending is broken down as follows; $10.5 million for new store construction, store remodels and technology upgrades and $0.3 million for capital spending at the corporate headquarters and distribution center.
During the quarter, we completed five full store remodels, four of which were relocations into new outdoor shopping centers and closed four stores, one of which was a used store, which was combined back with the full-line store upon remodel.
For the remainder of the year, we anticipate opening seven new stores and completing 14 additional full remodeling projects. Buckle ended the quarter with 440 retail stores in 42 states, which is consistent with the store count at the end of the first quarter last year.
And now I'll turn it over to Adam Akerson, Vice President of Finance.

Adam Akerson

Thanks, Tom. Women's merchandise sales for the quarter were down about 8.5% against the prior year fiscal quarter and represented approximately 47% of sales, compared to 47.5% in the prior year. On a 13-week comparable basis, women's merchandise sales were down approximately 9.5%. Average denim price points increased from $79.80 in the first quarter of fiscal '23 to $80.85 in the first quarter of fiscal 2024, while overall average women's price points increased about 1.5% from $47.40 to $48.
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 compared to 52.5% in the prior year. On a 13-week comparable basis, men's merchandise sales were down approximately 7.5%. Average denim price points decreased from $88.80 in the first quarter of fiscal 2023 to $88.65 in the first quarter of fiscal 2024.
For the quarter, overall average men's price points increased approximately 2% from $52.60 to $53.60. On a combined basis, accessory sales for the 13-week quarter were down approximately 8.5% against the prior year's 13-week comparable period, while footwear sales were down about 34%. These two categories accounted for approximately 11% and 6%, respectively. Our first quarter net sales which compares to 11% and 8% for each in the first quarter of fiscal 2023.
For the quarter, average accessory price points were up approximately 2%, and average footwear price points were up about 6.5%. Denim accounted for approximately 43% of sales and tops accounted for approximately 27.5%, which compares to 41.5% and 27% for each in the first quarter of fiscal 2023.
Compared to the same 13 weeks a year ago, our combined denim categories outperformed the total business and were down about 3.5% with strength in our private brands, including Buckle Black and Salvage.
Our shorts categories were challenged during the quarter due to lack of newness in the market, but we are able to sell through the category and ended the quarter with inventory down 17.5% from elevated levels a year ago. On a combined basis, our tops categories were down about 8%.
Despite tougher first quarter top-line results, we were pleased that our teams were able to grow merchandise margins in both our private label and branded business and effectively manage inventory levels.
As part of our merchandising strategy, our buying team continued to invest in the development of our private brands and have kept introducing new labels to our assortment. For the quarter, private label represented 46% of sales versus 44% in the first quarter of 2023.
And with that, we welcome your questions.

Question and Answer Session

Operator

Thank you. (Operator Instructions)

Thomas Heacock

If there's no questions, we can end the call today. We'll be quick, and we can get everyone started on their holiday weekend. So thank you very much, and enjoy the rest of the day.

Operator

It looks like we have a question from Mauricio Serna. (Operator Instructions)

Mauricio Serna

Can you hear me?

Dennis Nelson

Yeah.

Mauricio Serna

Sorry. Yeah, can you hear me?

Dennis Nelson

Yeah, Mauricio, we can.

Mauricio Serna

Thank you so much. Sorry about the delay. Yeah, I just wanted maybe -- a couple of questions. If you could talk about maybe more about what you're seeing in the denim category. I know you called it out like it's a relative stand out, and we have heard from other companies that we kind of -- seems like we are going through like a positive denim cycle. So it will be interesting to hear more -- your views on that.
And then you also mentioned the merchandise margins were up in both the private and the national brands. Just here -- would like to hear more what is driving that expansion? Because we've seen like, over time there is a natural lift to total merch margins just because of the private labels. But it's interesting to see what you're seeing in merchandise.
And then just very lastly, if I can squeeze this in on the operating expenses. I think like the general and administrative expenses were up year-over-year. So I was wondering what's driving that increase considering that sales have been down. Thank you.

Dennis Nelson

Okay. On the denim, on the ladies side, we are still seeing a variety of styles, the new trend styles that we refer to, the Cropped Straights and just the Wide Bottom styles and such is creating some interest and nice response. But on our private brands, we're still getting very good sell-through with the traditional fits with a lot of details, new [versions] and the people are continuing to learn more about our Buckle Black and BKE and getting a very good response there. We're still selling a few flares. So overall, just the variety of the selection and the inventory has been looking very good. The team is doing a nice job with that.
On the men's side, our BKE brand is very strong, and we continue to develop the Buckle Black for men's with Salvage and our Rock Revival customer is liking the newness. So here, again, just newness with the key brands on the men's side is working and a good response to that.
Margins in general, I think the team is doing a good job on the selection. Overall, our markdowns are up just slightly but our margins are up. And the -- we are very comfortable and good sell-through on the new product, and we are managing the inventory where we continue to bring in newness and that's working well on both sides.
And then, Tom, do you want to comment on the operating expenses?

Thomas Heacock

Yeah. I think your last question was on -- primarily on SG&A. I mean, the selling expense is down, not quite in-line with sales. And the biggest drivers there are -- with the sales trend reducing in-store hours, so we've seen a reduction in hourly store teammate pay and compensation there, partially offset by increases in management pay and management salary expense. So on the whole, payroll expenses is about flat offset by reductions in incentive compensation accruals and then also reductions in online shipping expense. So those are the biggest drivers of selling expense.
On the G&A side, really one thing stands out that we called out was accruals for additional PTO, and a lot of that is a timing thing. So we made a couple of changes as we looked at our total benefits package for our teammates at the start of the year. We bumped-up, paid time-off for a couple of buckets, not really meaningful changes, but made some small changes there for our teammates. But then really change how that is earned.
So we accelerated the accrual and the earning of paid time-off. So more of it's in the front part of the year to give our teammates the ability to use it earlier in the year and really make it easier from an administrative perspective. So that is kind of a timing thing more so than an increase in expense that will continue through the totality of the rest of the year.

Operator

Okay. Our next question is from Alan Glenn. (Operator Instructions)

Alan Glenn

Yeah. Good morning, everyone. At the year-end call, I think you updated us on the -- your approach to the stores and relocating some as leases expired and refreshing some, is there any new news on your store plans for the rest of the year?

Dennis Nelson

Well, as Tom mentioned, I think we still have 19 remodels for the year and probably eight new stores, I believe, is what we're looking at now -- no, seven, we had one move back in the -- [April 25]. So no real change there. We're continuing to work with our real estate landlords and still moving a lot of stores out of mid-market malls into power centers or better improved locations. So we look at every site still on an individual basis. The mall stores, we still have great mall stores in some of our biggest stores. But we continue to review and improve our store locations in all our markets.
This spring was -- this first quarter we actually had two stores that we were relocating and they actually -- I think it was the first time we've had to close stores during their remodel due to the sites not being ready soon enough. So we had two stores for -- close for over 60 days in the first quarter. And then we also had two stores that were in very troubled malls that we're able to keep open but now at the end of the quarter have just moved into the new locations, which we are pleased about. So in general, the same strategy of looking at everything, and we're pleased with how the real estate selection is going.

Operator

There are no further questions in queue. (Operator Instructions) Okay. It looks like there's no further questions at this time.

Thomas Heacock

Thank you. I apologize for trying to end the call early. We appreciate the questions and appreciate everyone participating today, and I hope you all enjoy the rest of the day. Thank you very much.