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 of Men's Merchandising; and Brady Fritz, Vice President, General Counsel and Corporate Secretary.

As they review the operating results for the second quarter which ended July 31, 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 calls should not be relied upon as the information may be inaccurate.

I would now like to turn the conference over to our host, Tom Heacock. Please go ahead.

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

Good morning, and thanks for joining us this morning. Our August 20, 2021 press release reported that net income for the 13-week second quarter ended July 31, 2021 was $51.4 million or $1.04 per share on a diluted basis, which compares to net income of $34.7 million or $0.71 per share on a diluted basis for the prior year 13-week second quarter, which ended August 1, 2020. Year-to-date, net income for the 26-week period ended July 31, 2021 was $108.7 million or $2.20 per share on a diluted basis compared to net income of $22.9 million or $0.47 per share on a diluted basis for the prior year 26-week period ended August 1, 2020.

Net sales for the 13-week second quarter increased 36.6% to $295.1 million from net sales of $216 million for the prior year 13-week second quarter. Compared to the second quarter of fiscal 2019, net sales increased 44.8% from net sales of $203.8 million. Online sales for the quarter were $43.4 million, a decrease of 5.5% compared to $46 million in the second quarter of 2020, an increase of 88.1% compared to $23.1 million in the second quarter of 2019.

Year-to-date, net sales increased 79.3% to $594.2 million from net sales of $331.4 million for the prior year 26-week fiscal period ended August 1, 2020. Compared to the same 26-week fiscal period in 2019, net sales increased 46.7% from net sales of $405.1 million. Online sales for the year-to-date period were $97.2 million, an increase of 24.5% compared to $78.1 million for the same 26-week fiscal period in 2020 and an increase of 104.5% compared to $47.5 million for the same 26-week fiscal period in 2019.

For the quarter, UPTs decreased approximately 6.5%, the average unit retail increased approximately 2.5% and the average transaction value decreased about 4%. Gross margin for the quarter was 48.1%, up from 43.2% in the second quarter of 2020. Our year-to-date gross margin was 48.7% compared to 36.3% for the same period last year. Second quarter increase in gross margin was the result of a 50 basis point improvement in merchandise margins coupled with 440 basis points of leverage occupancy buying and distribution costs as a result of the strong sales performance for the quarter.

Selling, general and administrative expenses for the quarter were 25.1% of sales compared to 22.1% for the second quarter of 2020, and our year-to-date SG&A was 24.5% of net sales, down from 27.4% for the same period last year. The second quarter increase was due to a 250 basis point increase in incentive compensation accruals, and 130 basis point increase in store labor-related expenses which were partially offset by a 70 basis point decrease in shipping costs and 10 basis points of leverage across several other SG&A categories. Our operating margin for the quarter was 23% compared to 21.1% for the second quarter of fiscal 2020. And for the year-to-date period, our operating margin was 24.2% compared to 8.9% 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 second quarter net income to $51.4 million for 2021 compared to $34.7 million for 2020. Our 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 $108.7 million for 2021 compared to $22.9 million for fiscal 2020.

Our press release also included the balance sheet as of July 31, which included the following. Inventory of $95.3 million, which was down from inventory of $116.5 million as of August 1, 2020 and total cash and investments of $434.9 million. We ended the quarter with $99.7 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $4.6 million and depreciation expense was $4.9 million. For the year-to-date period, capital expenditures were $9.2 million and depreciation expense was $9.7 million.

Our year-to-date capital spending was broken down as follows. $8.6 million for new store construction, store remodels and technology upgrades and $0.6 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened one new used store, completed two full remodels, both of which were relocations into new outdoor shopping centers and closed one store. This brings our year-to-date totals to one new store, seven full remodels and two store closures. For the remainder of the year, we anticipate completing six additional full remodeling projects.

Based on current store plans, we now expect our capital expenditures to be in the range of $12 million to $15 million, which includes both planned store projects and IT investments. Buckle ended the quarter with 442 retail stores in 42 states compared with 446 stores in 42 states at the end of the second quarter of fiscal 2020.

Now, I'll turn it over to Kelli Molczyk, Vice President of Women's Merchandising.

Kelli Molczyk - Vice President – 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 31.5% against the prior year quarter. For the quarter, our women's business was approximately 45% of sales compared to 46.5% in the prior year. Average denim price points increased from $74.60 in the second quarter of fiscal 2020 to $74.65 in the second quarter of fiscal 2021. And overall, average women's price points increased about 3.5% from $38.65 to $40.

What an exciting quarter as we saw continued strong responses to new products in every category. Our denim across all fits brands and classifications drove our growth. We worked hard to balance our core fits and stretch fabrics with new fits - fashion fits and rigid fabrics, which has significantly expanded the variety in our denim collection. Our private label denim continues to represent a larger share of our mix and was a key contributor in driving our denim sales for the quarter. Outside of denim, our offering in shorts in a variety of fabric, including denims, [Indecipherable] and knits were also strong, as guests continued their buy now wear now purchasing patterns.

The second quarter also brought fashion shifts as guests re-emerge from their homes and returned to normal activities. They moved away from the simple and casual items and into fashion tops, dresses and two-piece set, graphic tees, fashion footwear and accessories. With the extended number of brands and lifestyles we now offer in our stores, we are excited about the opportunities we've created to continue both capturing new guests and engaging our loyal guests.

Our youth business also saw a nice lift in sales throughout the quarter as kids started back to school. Our teams have done an amazing job of putting Buckle Youth on the map through both our four freestanding youth locations, along with an expanded assortment in our regular stores. We've added youth top-to-bottom assortment to another 75 of our Buckle stores, which takes us to 350 stores with the presence of youth products.

Despite supply chain challenges during the quarter, the team continues to work very closely with our brand partners on creative solutions to minimize the impact to our women's business. This will be an ongoing focus for us as things continue to evolve over coming months. I want to sincerely thank all of our vendors and brand partners that are working extremely hard for Buckle as well as our teams here in the office, in our distribution center and in our stores for continuing to keep Buckle at the forefront of fashion.

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

Bob Carlberg - Senior Vice President – Men's Merchandising

Thanks, Kelly. Men's merchandise sales for the fiscal quarter were up 40.5% against the prior year fiscal quarter. For the quarter, our men's business was approximately 55% of net sales compared to 53.5% in the prior year. Average denim price points decreased from $87.85 in the second quarter of fiscal 2020 to $85.10 in the second quarter of fiscal 2021. Our overall average men's price points increased slightly from $45.80 to $45.85.

Q2 was another standout quarter as we delivered fresh new product for our guests. Denim led our men's dollar increase with continued strength in our private brands, BKE is still being our largest along with strong trends in Rock Revival and our street brands. Knit shirts and specialty graphic tees showed incredible growth driven by the best balance of brands, lifestyles, colors and graphics I've ever seen. Our teams do a great job of curating looks from all American to country, to street, to West Coast, enabling our teammates to serve any age and lifestyle.

Shorts and accessories were our next largest growth department. Shorts were very strong overall as we expanded our elastic waste business without losing our flat front and long time good cargo business. Almost all accessory categories performed well, led by hats, fragrance and Oakley glasses. Youth growth has been fun to see not only in our four youth-only doors, but the expansion in our full-line stores has also been very successful. It's much smaller dollars, but I'm excited to say that our bottom - our button front business is back and growing. I can't say enough to thank our sales and support teammates as well as our guests for all they have done to make this happen. We've made the best of a challenging year for both building and sourcing products, as you can see from our results.

Now turning to results on a combined basis. Accessory sales for the fiscal quarter were up approximately 43% against the prior year fiscal quarter, while footwear sales were up about 14.5%. These 2 categories accounted for approximately 10% and 8% respectively of second quarter net sales. This compares to 10% and 9.5% for each in the second quarter of fiscal 2020. Our average accessory price points were up approximately 5.5%, average footwear price points were up about 2%. Again on a combined basis for the quarter, denim accounted for approximately 33.5% of sales, tops accounted for approximately 31%. This compares to 32% and 30.5% for each in the second quarter of fiscal 2020. For the quarter, our private label business represented approximately 30% of sales.

And with that, we welcome your questions. Thank you.

Question & Answers

Operator

[Operator Instructions] Our first question comes from the line of Peter Brocci [Phonetic] from Brocci Capital. Your line is open. Please go ahead.

Peter Brocci - Brocci Capital - Analyst

Yes, good morning. Thanks for taking my call. I realize that you guys don't give guidance and don't necessarily think that the growth that you've experienced recently is completely related to the stimulus payments that we've seen. But I wonder if you could comment on the sustainability of the recent growth based upon what you're seeing?

Dennis Nelson - President and Chief Executive Officer

Hi. Good morning, Peter. Well, we feel really good about what we have going on with our stores and our online. We - one thing we've noticed is, we've added over 40% new guests over this past year. In addition, we've relocated some of our mall stores in the outdoor power centers and lifestyle centers, which we've had very good response. We're especially proud of our teams. We always take a specialty store approach. And we have great talent in our stores that provide an excellent experience for our guest and enjoyable.

In our merchandise teams, we continually hear, they know and understand our guests better than anyone else our vendors work with. And that's why we've been able to provide on target fashion that is selling very quickly at regular price. Markdowns are definitely down. There are some challenges with the supply line, but that's been going on for a year and a half. And what we see a plus for us is a lot of our product is exclusive in addition to private label with our brands, a lot of exclusive products that our guest will look forward to buy if it's not available for a few weeks that we see them continually shopping us to come in and find their favorite denim fits and selection of product.

Peter Brocci - Brocci Capital - Analyst

Okay, great. Thanks very much. So the supply chain, the shipping cost seems to be elevated for everybody, and that was my next question. So thanks for addressing that. But coming into holiday, you don't see that as a big problem then or how do you feel about that?

Dennis Nelson - President and Chief Executive Officer

Like I said, there is challenges just like there has been. With the shutdown in Vietnam, we're going to have some deliveries that are later. What's been beneficial is we've had success now for - since things reopened for a long time. So we've been - our teams have been planning with our vendors. They have a long-term great working relationship with our partners. And so they go out of their way to help us as well as we're always working with them to develop more products.

And so there are going to be some expense savings, but I think we've managed a lot of that pretty well and figured out opportunities as we've done along. So we think we think we can manage our business very well. And there could be some periods of time that will not be as strong as others, but we're very - feel very good about what our company is doing and the support we have at the home office for our stores and our merchandise teams.

Peter Brocci - Brocci Capital - Analyst

Great. Well, thanks very much for taking my questions, and congratulations on an outstanding quarter.

Dennis Nelson - President and Chief Executive Officer

Yeah. Thank you, Peter. Have a good day.

Operator

Our next question comes from the line of Steve Marotta from C.L. King and Associates. Please go ahead. Your line is open.

Steve Marotta - C.L. King & Associates - Analyst

Good morning. Thank you for taking my question. Dennis, I have a question - and again, I know that you don't provide quarter-to-date guidance nor any sort of future guidance. But chatter is that within the retail channel, August has slowed a little bit from the pace in June and July. And with that as a backdrop, and again not specific to the Buckle, is it - and I know this is a bit reverse logic, but is it the worst thing in the world if demand slows a little bit to a better match what is the flow of goods currently, which is obviously a little bit tricky? In other words, demand is significantly outstripping supply at this moment and the supply chain is probably not getting any better. Would it be, again, the worst thing in the world if demand slows a little bit in order to better align those two?

Dennis Nelson - President and Chief Executive Officer

Well, we don't like to put off what we can sell today, but the - if there is any slowness preceding that and that helps us catch up, then I guess that is a small win.

Steve Marotta - C.L. King & Associates - Analyst

That's helpful. Thank you.

Dennis Nelson - President and Chief Executive Officer

Yeah.

Operator

[Operator Instructions] We do have a question from the line of Kyle Kavanaugh from Palisade Capital. Your line is open. Please go ahead.

Kyle Kavanaugh - Palisade Capital - Analyst

Hi, Dennis. How are you?

Dennis Nelson - President and Chief Executive Officer

Good, Kyle. Good morning.

Kyle Kavanaugh - Palisade Capital - Analyst

Good morning. I was just curious, I don't know if - could you just comment on the online sales, year-over-year dynamic? And then also the leverage of occupancy. Was that just sales growth or did you also have rents or anything going on, on the rent side as well?

Dennis Nelson - President and Chief Executive Officer

Well, the online business, last year I think we had two months up 100%, another one around 90% or 88%. So being up 5% this quarter, I don't see that particularly shocking especially since our guests were going back to - more of them were going back to the stores and having great response there. And on the occupancy, I think the largest part was the growth in sales, although we've felt very good about our renewals and where our store leases are as we go forward.

Kyle Kavanaugh - Palisade Capital - Analyst

Great. Thanks, Dennis.

Dennis Nelson - President and Chief Executive Officer

Yeah. Thank you.

Operator

Our next question comes from the line of Dave Ujjval from Ujjval Investments. Your line is open. Please go ahead.

Ujjval Dave - Ujjval Investments - Analyst

Hi. Thank you. This is Ujjval Dave. I have a question over the insider ownership. One prominent aspect of Buckle has been significant insider ownership, especially by the Founder, Daniel and you Dennis. This is great word of confidence in the business. But Dennis, you have been the Steady Eddie with your stake more or less remained stable over many, many years. If I look at 2020 proxy statement, you had more than 3.2 million shares, which was nearly 6.6% of the total outstanding shares. However, if I - as per the recent SEC Form 4 filings, you have been drawing out very significant amount of shares on a regular basis. Since April of this year, you have sold more than 36% of your total ownership, and now your ownership is, if I did the calculation right, is around 4.2% compared to 6.6% just 12 to 15 months back. I'm just wondering, if there is any particular force behind this extensive selling? Should we expect any retirement news or management changes at Buckle in the near new future?

Dennis Nelson - President and Chief Executive Officer

Well, Dave, I've been working on some estate planning and we have no announcements at this time.

Ujjval Dave - Ujjval Investments - Analyst

Okay. Thank you.

Operator

One moment for our next question. Our next question comes from the line of David Berman from Berman Capital. Your line is open. Please go ahead.

David Berman - Berman Capital Advisors, LLC. - Analyst

Thank you. Hi, Dennis.

Dennis Nelson - President and Chief Executive Officer

Good morning, David.

David Berman - Berman Capital Advisors, LLC. - Analyst

I see on a two year basis, sales up 25% and inventory is actually down 26%. Similar to last quarter, I've never seen any ratio like this before. But one of the things that you've always been good at doing is turning your inventories fast, and I think last few years that's not a little bit. So hoping - is this like a permanent sort of improvement in the turns of the business that you want to keep at this level? Just curious, whenever you want to have your inventories at going forward?

Dennis Nelson - President and Chief Executive Officer

Well, it's not a level of inventory that we want to maintain. We know we're missing some sales at this level. But it's just difficult to catch up on the inventories with the growth of our sales being in the 36% and higher the first quarter. As far as planning and then with some disruptions in the supply chains, also adds to complication. So we're planning out and we expect it to get closer to a normal level by this fall. And now at Vietnam, it might take a little bit longer, but we still have some great selection and a substantial part of our planned inventory coming in. So we're just - the team is doing their best and planning to get that level up.

David Berman - Berman Capital Advisors, LLC. - Analyst

But with the sales up so strong, the - so was your inventory. Why wouldn't this be what you prefer? Like, what do you - because the margins are obviously [Indecipherable] along with it?

Dennis Nelson - President and Chief Executive Officer

Well, we don't want to disappoint some of our guests. And if we're close to this level then I guess we need to be happy about that. But we hope to improve on that a little bit, but still keeping the high turns.

David Berman - Berman Capital Advisors, LLC. - Analyst

Yeah, well done. Thanks very much.

Dennis Nelson - President and Chief Executive Officer

Yeah. Thank you.

Operator

And we have a follow-up question from the line of Kyle Kavanaugh. Your line is open. Please go ahead.

Kyle Kavanaugh - Palisade Capital - Analyst

I was just wondering if you could comment on the environment within the mall, maybe the competitive environment and what's the landscape is? How it's different now? Whether or not there is less competition in some of your sales gains or market share gains or just the catch-up from everybody being cooked up? So just curious, if you can comment on the landscape competitive environment.

Dennis Nelson - President and Chief Executive Officer

Well, regarding the malls or different shopping areas, we are in the substantial number of very good malls that have good traffic and they're great for us. We've also found malls that are no longer the best shopping experience for our guests in a center where we move to power centers and we've been very happy with that. We still have some outdoor lifestyle centers that we've improved our location in and such. So we look at each community and where the best shopping experience is to set us up for the future in these opportunities.

And I think it seems like we're gaining extra market share. More guests are seeing that they can shop us where they used to think they were too old or we didn't have their sizes or our price points used to be too high back in the '08 to '15 range when a lot of our denims were $120, $160. We maybe lost some guests that didn't shop us then, and now they're seeing us maybe in the $75, $80 average price, even though we have a wide selection of prices that were very affordable and we have great quality and we're selling their favorite clothes, whether it's brands or fits.

And so I think we've separated ourselves where we are now a great destination store for denim especially, but also so many different lifestyles that people like, that our selection is just great. And with our sales teams, the experience in the store is excellent. So we think we're winning over fans that way, and we'll continue to work at that.

Kyle Kavanaugh - Palisade Capital - Analyst

And just a little follow-up on the online strategy. Is there any current changes or kind of emphasis or priorities right now with your online strategy?

Dennis Nelson - President and Chief Executive Officer

We'll continue to try to better serve our guest on it with other pay methods. And our marketing team, they will continue to hire staff where we can make it a better shopping experience and such. So we're certainly continuing to look on how to improve that just like we do the rest of the company.

Kyle Kavanaugh - Palisade Capital - Analyst

Great. All right. Thanks, Dennis.

Dennis Nelson - President and Chief Executive Officer

Yeah. Thank you.

Operator

And there are no further questions in the queue.

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

If there are no questions, we can wrap up the call today. And thanks everyone for participating in and enjoy the rest of the day. Thank you very much.

Operator

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BUCKLE INC

Q2 2021

Earnings Transcript

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