The Buckle, Inc. (NYSE:BKE) Q1 2019 Earnings Conference Call - Final Transcript

May 24, 2019 • 10:00 am ET

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The Buckle, Inc. (NYSE:BKE) Q1 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Thomas Heacock

quarter. The year-over-year decrease is the result of a 30 basis point decline in merchandise margins and 50 basis points in deleveraged occupancy buying and distribution expenses.

Selling expenses for the quarter were 23.2% of net sales, up 80 basis points from 22.4% of sales in the prior year first quarter. Selling expenses for the quarter were impacted by a 70 basis point increase in store compensation as we continue to invest in our talent and store teammates, in addition to a 10 basis points increase in certain other selling expenses.

General and administrative expenses for the quarter were 5.6% of net sales, which compares to 5.1% of net sales for the first quarter of fiscal 2018. The G&A expense increase is due to increased IT investments, both in terms of increased home office payroll, as well as spending for other strategic initiatives, along with an increase in professional fees.

Our operating margin for the quarter was 9.3% compared to 11.4% for the first quarter of fiscal 2018.

Other income for the quarter was $1.3 million, which compares to $1.5 million for the first quarter of 2018.

Income tax expense as a percentage of pretax net income for the quarter was 24.5% compared to 25.9% for the first quarter last year, bringing first quarter net income to $15.1 million for fiscal 2019 compared to $18.3 million for fiscal 2018.

Our press release also included a balance sheet as of May 4, 2019, which included the following: inventory of $120.8 million, which was up approximately 2.2% from inventory of $118.2 million as of May 5, 2018; and total cash and investments of $253.3 million, which compares to $238.8 million at the end of 2018 and $241 million as of May 5, 2018. At quarter end, inventory in a comparable store basis was up approximately 3%, and total markdown inventory was up compared to the prior year.

We ended the quarter with $126.9 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $2.5 million, and depreciation expense was $6.2 million. Year-to-date, capital spending is broken down as follows: $2.3 million for store constructions, store remodels and store technology upgrades; and $0.2 million for capital spending at the corporate headquarters and distribution center.

Please also note that we adopted FASB ASC 842 for lease accounting effective February 3, 2019. Adoption of the new accounting guidance for leases resulted in the recognition of approximately $373.3 million of lease liabilities and corresponding right-of-use assets of approximately $345.5 million with the offsetting balance representing a reduction in the previously recognized deferred rent balances. The adoption did not result in a material impact on the Company's reported net income.

During the quarter, we closed one store and completed one full remodel. For the year, we still plan on opening one new store and completing two additional full store remodels, which includes one remodel already completed in May and another schedule to be completed for back to school. Based on current plans,