Ladies and gentlemen, thank you for standing by, and welcome to the third quarter earnings release conference call. [Operator Instructions] As a reminder, this conference is being recorded.

Members of Buckle's management team on the call today are Dennis Nelson, President and CEO; Karen Rhoads, Vice President of Finance and CFO; Pat Whisler, Vice President of Women's Merchandising; Bob Carlberg, Vice President of Men's Merchandising; Kyle Hanson, Corporate Secretary and General Counsel; and Tom Heacock, Treasurer and Corporate Controller.

As they review the opening results -- the operating results for the third quarter, which ended November 2, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following Safe Harbor statement. .

All forward-looking statements made by the company involve material risks and uncertainties and are subject to changes -- 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.

I would now like to turn the conference over to Ms. Karen Rhoads, please go ahead. .

Thank you. Good morning, everyone. Thanks for joining the call. Our November 21, 2013, press release reported that net income for the 13-week third quarter that ended November 2, 2013, was $40.6 million or $0.85 per share on a diluted basis.

And that is compared to net income of $41.9 million or $0.88 per share on a diluted basis for the prior year 13-week quarter that ended October 27, 2012. Year-to-date, our net income for the 39-week period ended November 2, 2013, was $103.3 million or $2.15 per share on a diluted basis.

That is compared to net income of $102.9 million or $2.16 per share on a diluted basis for the prior year 39-week period ended October 27, 2012. .

Net sales for the 13-week third quarter increased 0.9% to $286.8 million compared to net sales of $284.1 million for the prior year 13-week third quarter. Our comparable store sales for the quarter were down 0.5% in comparison to the same 13-week period in the prior year.

And our online sales, which are not included in comparable store sales, increased 11.9% to $22.0 million. .

Net sales for the 39-week year-to-date period increased 3.4% to $789 million compared to net sales of $763.4 million for the same period in the prior year. Our comparable store sales for the year-to-date period were up 1.2% in comparison to the same 39-week period in the prior year.

And our online sales, which again are not included in comparable store sales, increased 7.9% to $59.7 million. .

Gross margin for the quarter was 44.0%, down approximately 10 basis points from 44.1% for the third quarter last year.

A 30 basis point improvement in merchandise margin was offset by a 40 basis point increase as a percentage of net sales in occupancy, distribution and buying expenses due to the slight comparable store sales decrease and a shift in the weeks for the fiscal period..

For the year-to-date period, gross margin was 42.8%, an improvement of approximately 10 basis points from 42.7% for the same period last year. A 25 basis point improvement in merchandise margins was partially offset by an increase in occupancy, distribution and buying expenses. .

Our selling expense for the quarter was 18.1% of net sales compared to 17.3% for the third quarter of fiscal 2012. Increases in store payroll expense, health insurance claims expense and certain other selling expenses were partially offset by a reduction as a percentage of net sales in expense related to the incentive bonus accrual. .

For the year-to-date period, selling expense was 18.3% of net sales compared to 18.0% for the same period in fiscal 2012. Increases in store payroll expense and health insurance claims expense were partially offset by reductions as a percentage of net sales and certain other selling expenses. .

Our general and administrative expenses for the quarter were 3.6% of net sales compared to 3.5% for the third quarter of fiscal 2012 primarily driven by an increase in equity compensation expense.

For the year-to-date period, general and administrative expenses were 3.9% of net sales compared to 3.7% for the same period in fiscal 2012 primarily driven by increases in equity compensation expense as well as certain other general and administrative expenses. .

Our operating margin for the quarter was 22.3% for the third quarter of fiscal 2013 compared to 23.3% for the third quarter of fiscal 2012. And for the year-to-date period, our operating margin was 20.6% compared to 21.0% for the same period last year. Other income for the quarter was $400,000 compared to $200,000 for the third quarter of fiscal 2012.

And other income for the year-to-date period was $1.2 million compared to $2.3 million last year. .

Our income tax expense as a percentage of pretax net income was 37% for the third quarter of fiscal 2013 compared to 36.8% in the third quarter of fiscal 2012, bringing third quarter net income to $40.6 million for fiscal 2013 versus $41.9 million for fiscal 2012.

And year-to-date, our tax expense was also 37.0% for fiscal 2013 and 36.8% for fiscal 2012, bringing year-to-date net income to $103.3 million for fiscal 2013 versus $102.9 million for fiscal 2012. .

Inventory of $146.3 million, which was up approximately 9% from inventory of $134.5 million at the end of the third quarter of fiscal 2012; and total cash and investments of $195.6 million, which compares to $179.8 million at the end of fiscal 2012 and $278.6 million at the same time a year ago. .

As of the end of the quarter, inventory on a comparable-store basis was up approximately 7%, and total markdown inventory was up compared to the end of the third quarter last year. We also ended the quarter with $164.9 million in fixed assets net of accumulated depreciation.

Our capital expenditures for the quarter were $6.3 million, and depreciation expense was $8.1 million. For the year-to-date period, our capital expenditures are $25.2 million, and depreciation expense was $24.0 million. .

$17.5 million for new store construction, store remodel and store technology upgrades and $7.7 million for capital spending at the corporate headquarters and distribution center, including $5.4 million for the purchase of a new airplane to replace a plane that was sold last fiscal year. .

We also, just this week, broke ground on a new 80,000 square-foot building that will provide additional office space as part of our home office campus here in Kearney, Nebraska. We plan to complete some of the initial site preparation by the end of December and then begin construction of the building in the first quarter of next year.

We now expect our fiscal 2013 capital expenditures to be in the range of $30 million to $32 million. For the quarter, UPTs increased approximately 3.5%, the average transaction value increased approximately 2.0%, and the average unit retail decreased approximately 1.5%.

For the year-to-date period, UPTs increased approximately 3.5%, the average transaction value increased approximately 3.5%, and the average unit retail decreased just slightly. .

Buckle ended the quarter with 452 retail stores in 43 states compared to 440 stores in 43 states at the end of the third quarter of fiscal 2012. Additionally our total square footage was 2.273 million square feet as of the end of the quarter compared to 2.204 million square feet at the same time a year ago. .

And now at this point in time, I'd like to turn the call over to Tom Heacock, our Corporate Controller and Treasurer. .

Good morning, and thanks for joining us. I'd like to start by highlighting the performance from our various merchandise categories that led to our net sales increase of 0.9% for the quarter. .

Men's merchandise sales for the quarter were up approximately 2.5%. Strong categories included denim and casual bottoms, knit shirt, shorts and accessories. Average denim price points increased from $85.60 in the third quarter of fiscal 2012 to $88.70 in the third quarter of fiscal 2013.

For the quarter, our men's business was approximately 39% of net sales compared to approximately 38.5% last year, and our average men's price points increased approximately 2% from $56.20 to $57.35..

Women's merchandise sales for the quarter were down just slightly, with strong categories including casual bottoms, woven tops, sweaters, active apparel, skirts and dresses, accessories, and footwear. Average denim price points decreased from $99.90 in the third quarter of fiscal 2012 to $98.25 in the third quarter of fiscal 2013.

For the quarter, our women's business was approximately 61% of net sales compared to approximately 61.5% last year. And our average women's price points decreased approximately 2.5% from $52.15 to $50.75..

For the quarter, combined accessories sales were up approximately 3% and combined footwear sales were up approximately 13%. These 2 categories accounted for approximately 8% and 6%, respectively, of third quarter net sales, which compares with approximately 8% and 5.5% for each in the third quarter of last year.

Average accessory price points were down approximately 3%, and average footwear price points were up approximately 17.5%. .

For the quarter, denim accounted for approximately 48.5% of sales, and tops accounted for approximately 30.5%, which compares to approximately 50.5% and 30.5% for each in the third quarter of last year. Our private label business was up slightly as a percentage of net sales for the quarter and represented approximately 35% of sales.

During the quarter, we opened 1 new store, closed 1 store and completed 2 substantial remodels. As of the end of the quarter, 341 of our 452 stores were in our newest format. .

For the full fiscal year, we opened 13 new stores in total, plan to complete a total of 8 substantial remodels, which includes 2 stores that moved into that remodel locations already in November and 1 additional for the first week of December. Right now, current plans for fiscal 2014 includes 16 new stores and 14 to 16 full remodels. .

Now with that, we'll open it up to your questions. .

[Operator Instructions] Our first question comes from the line of Paul Alexander with Bank of America. .

Guys, on the selling expense, in the past, you've been able to offset increases in certain items within the selling expense bucket. But this quarter, it seems to be a little bit different with the increases in store payroll and health insurance.

What happened differently this quarter? Or is there some kind of investment phase happening in store payroll or some kind of external pressure on the health insurance?.

Yes, I think some of it. Looking back a year ago, selling expenses were down about 100 basis points and about 40 of that was payroll. So a year ago, we were -- we're probably especially good on the payroll.

And then this year, that flipped with comps in September being a little bit slower that we didn't manage the payroll quite as well, and that was up about 40 basis points. And then I think the same is true for health insurance, a year ago it was down slightly and then kind of corrected, and it was back up this year.

So no real structural changes, I think, the calendar shift also had a little bit of impact on the payroll, but those are probably the main factors. .

All right. And then just a followup.

How do you guys feel about the inventory? I don't know if that's also impacted calendar shift, but with comparable inventory up and markdown inventory up, is that anything that you're concerned about?.

Paul, sorry, I was just to say Paul, Dennis is calling in remotely, so I think, I'm going to direct this one to Dennis, if you don't mind picking that one up?.

Sure, thanks, Paul. We feel good about our inventory and where we're at. We have built inventory some because last year, we felt we missed some denim business, especially at the end of December and going into January. So we are pretty much on plan at this point. Thank you. .

Next we'll move to the line of Edward Yruma with KeyBanc. .

Just really quickly on capital allocation, I know that you did a double special dividend last year. I know that you kind of assessed capital structure around this time of year.

I guess, what should we expect? Would you consider doing another dividend this year in light of the double dividend last year?.

Ed, we will have our Board meeting in December. As always, we review opportunities and where we see our business going so we would probably make a decision at that point. .

Got it. Maybe 1 quick followup to Paul's question, really specifically on the markdown piece a bit.

How do you feel about the quality of inventory? And I guess, specific as it relates to the markdown bucket, do you expect that you will be able to get that in line by the end of the fourth quarter?.

Tom, did you want to comment on that part of it?.

Sure. I think when we commented it, its up slightly in absolute dollars as far as markdown inventory. But as a percentage of sales, it's actually down slightly. And I think some of that could be, we're looking at that as of a point in time. And so it was week later this year compared to where we ended the quarter a year ago.

So I think that also had some impact. But like Dennis said earlier, I think we feel good about the composition of the inventory, and we feel good about how we are positioned for holiday. .

And next we'll move to Kate Fitzsimons with JPMorgan. .

I wanted to ask about the merchandise margin performance. Impressive to see it up year-over-year given the tough environment.

Can you just talk about some of the puts and takes that impacted the margin performance in the quarter and longer term thoughts on merchandise margin expansion from these levels?.

Well as far as the part about the expansion, its -- the team's been performing very well. And we haven't promised continued growth there, although we continue to work hard at improving that. The -- I think some of the private label and some of our categories expanded this year.

We've added more private label in the gal's denim side this year, which has helped some there and just maybe an improvement on some of the top categories on better sell-throughs and maintaining margin. I think the sweaters have done a little better this year over last year on the gal's side.

So just kind of overall improvements here and there and eliminating a few mistakes. .

Great. And then just a followup.

As we head into holidays, should we think about you guys introducing any incremental events or making any adjustments to pricing in order to drive puts up to the malls just given that fourth quarter commentary seems pretty challenging to date?.

We have pretty much the same specials planned for Thanksgiving weekend as we did last year.

And, Bob, do you want to highlight a few of the gift with purchase we have with vendors?.

Yes, we're anniversary-ing the Rock Revival and Affliction, 2 of our best partners, where we do those gifts with purchase promotions that run over Thanksgiving. And we've done that the past 2 years, so this will be our third year and that will run through 12/8. .

Next we'll move to the line of Andrew Hollingworth with Holland Advisors. .

Just a couple of quick questions. Just coming back to the selling price points in ladies' denim, which is a substatement from October time. Could you just perhaps expand on that a little bit.

I mean, do you think that's something where there's sort of just a couple of trends are being missed? Or where a couple of brands just sold so well in previous [indiscernible] there's no way that you could ever comp in quite the same way.

And just to get a little bit of color for, after a long period of good average selling prices where -- whether the current trends are changing that or whether they're just a sort of bump along the road? And the second part of that would be just in terms of the margins, whereby if we are selling more own label, let's say ladies denim that's at different lower selling prices, is there a different margin structure attached to that? Or is it just the fact that the selling price is different but the underlying margin is likely to be pretty similar, but it's just on a lower dollar strike price?.

Yes. Well I think a year ago, we have expanded our DayTrip denim label on the gal's side, which is price points at $59 and some in the $54 range, right through there. And so we increased our inventory there.

And then last year, also in our BKE denim, which is also our private brand, we were kind of transitioning from different makers, and that has worked out well. And so a year ago, we were in the high $70s, low 80s on the BKE. This year, we are $79 to $69. So both of those brands brought down the retail some, and we've been happy with that business.

But I think that's the reason we went from the $99, I don't have that in front of me. .

It was about $99 to $98 I think, was the... .

Yes, so I think that's the main reason there. And the private brands have very good margins with those, but we're very happy with our branded business as well.

Did that answer everything?.

If for any reason the fashion trends moved towards a more in-label or certain couple of brands you'd sell 1 of, moving down for, let's say, a period of time.

Then ultimately you would expect to see that in the turnover loan book, whilst the absolute profit would go down, your margins would either be boosted or at least helped because your own label is still as good a margin, is that a fair conclusion?.

I think that's fair to look at it that way, yes. .

Next we'll move to the line of Simeon Siegel with Nomura Securities. .

Do you see any divergence in geographic trends or by channel? I mean, it looks like the online sales accelerated sequentially, so and I guess particularly compared to the store sales.

So could there be -- could there have been any weather impact over the quarter that may have sent people online versus stores or anything else you're seeing there? And then Dennis, sorry if I missed it, but are you and the team seeing any particular emerging brands or trends out there?.

Well we see our product continue to evolve, and I think, the teams are doing a great job with the newness of different categories. I mean, it's a small category, but the gal's skirt business has been good. It's an item we didn't have a year ago. And so I think the teams are on it pretty good.

They're doing a nice job with color and bringing in some of our own brands where we're bringing in collections, so to speak, that sell well together. So I think the team is strong and doing a very nice job of anticipating the direction of what's going on. And so I don't know that we have any big brand names, so to speak, that we're reintroducing.

There might be some tests. They're always testing new vendors. So just continued evolvement in the casual lifestyle that I think is good. And let's see, and I think September was unusually warm. So our warm -- we actually sold some of our activewear groups a little better, longer than normal in that season.

But as far as why the Internet business was stronger than the store, I don't have a good handle on that. .

[Operator Instructions] And we'll go to the line of John Kernan with Cowen and Company. .

This is Jerry Gray on for John. Your store transaction count seems to have been trending down for about the past 1.5 years.

I was wondering if you could give us some color on what's driving that or if you have any initiatives planned to help turn that line item around?.

Well we don't have a store -- traffic counters in the stores. We hear from others that traffic in the malls or certain centers are down. But we continue to work at being a real specialty store.

We have talented people in the store and they're -- they continue to work on our guest loyalty and lining up Get Fitted appointments and just doing an excellent job on the guest service so that we can continue to grow our business that way and work to have our guests come in more often as well. .

All right. Great. And just on the cost side, I was wondering, if heading into next year, you guys have seen any changes to your sourcing costs? We've been hearing possibly they're trending up heading into 2014. .

Bob or Pat, do you have any comments on that?.

Right now, we're not seeing any increase in pricing. Cotton's actually come down a little bit, but I'd say probably more consistent with where we're at right now would be what we would see. .

Yes, I would agree with that comment. And we're always just looking for unique details. We'd rarely go back to an exact same item. So it's difficult to compare apples-to-apples, but overall, I'd say we're very happy with that. .

Okay.

Does that take care of that question?.

Next, we'll move to a followup from Andrew Hollingworth with Holland Advisors. .

Right. Just 1 quick one if I can.

Have you given, and if you haven't I understand, store growth [indiscernible] base plan for next year?.

Yes. I believe Tom commented, we have 16 new stores planned for next year. I think 4 of them are mid-later spring, 6 roughly back-to-school, and 6 for fall holidays is where the flow is right now. .

[Operator Instructions] And at this time, no one is queuing up. Please continue. .

Well if there are no further questions, I think that this will conclude our conference call for this quarter. And again, we appreciate everyone dialing in, and we appreciate the questions. So thanks a lot, and have a great day. .

Thank you. .

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