Ladies and gentlemen, thank you for standing by, and welcome to The Buckle's Fourth Quarter Earnings Release Conference Call. [Operator Instructions] And as a reminder, your conference is being recorded. .

Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and CFO; Pat Whisler, Senior Vice President of Women's Merchandising; Bob Carlberg, Senior Vice President of Men's Merchandising; Kyle Hanson, Vice President, General Counsel and Corporate Security; and Tom Heacock, Treasurer and Corporate Controller. .

As they review the operating results for the fourth quarter, which ended February 1, they would like to reiterate their policy of not giving future sales or earnings guidance and having 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 and 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 would 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 reproduction 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 your host, Ms. Karen Rhoads. Please go ahead. .

Thank you. Good morning, everyone, and thank you for joining Buckle's conference call. Our March 14, 2014, press release reported that net income for the 13-week fourth quarter that ended February 1, 2014, was $59.3 million or $1.23 per share on a diluted basis.

And that's compared to net income of $61.4 million or $1.28 per share on a diluted basis for the prior year 14-week fourth quarter that ended February 2, 2013.

Our net income for the 52-week fiscal year that ended February 1, 2014, was $162.6 million or $3.39 per share on a diluted basis compared to net income of $164.3 million or $3.44 per share on a diluted basis for the 53-week fiscal year that ended February 2, 2013. .

Net sales for the 13-week fourth quarter decreased 6% to $339 million compared to net sales of $360.6 million for the prior year fourth quarter, which was a 14-week quarter. Comparable store sales for the quarter were down 2.8% in comparison to the same 13-week period in the prior year.

Our online sales, which are not included in comparable store sales, increased to $29.3 million. For the 13 weeks compared to the 14-week quarter a year ago, that was an increase of 0.4%. And if we compare the same 13 weeks a year ago, online sales were up about 7.3%. .

Net sales for the 52-week fiscal year ended February 1, 2014, increased 0.4% to $1.128 billion compared to net sales of $1.124 billion for the 53-week fiscal year ended February 2, 2013. Comparable store sales for the fiscal year were flat in comparison to the same 52-week period in the prior year.

Our online sales, which again are not included in comparable store sales, increased to $89 million. And that's -- for the 52 weeks compared to the 53 weeks a year ago, that was an increase of 5.3%. And comparing 52 weeks to 52 weeks, the increase would have been close to 7.5% for online sales. .

Gross margin for the quarter was 47.6%, down approximately 40 basis points from 48.0% for the fourth quarter last year.

The decrease was driven by deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline and 1 fewer week in the fiscal quarter this year, which had approximately 110 basis point impact on gross margin and was partially offset by a 40 basis point improvement in merchandise margins and a reduction in expense related to our incentive bonus accrual.

For the fiscal year, gross margin was 44.2%, down approximately 20 basis points from 44.4% in fiscal 2012.

The decrease was driven by deleveraged occupancy, buying and distribution expenses, which had approximately a 55 basis point impact on gross margin and was partially offset by a 25 basis point improvement in merchandise margins and a reduction in expense related to the incentive bonus accrual. .

Selling expense for the quarter was 18.5% of net sales compared to 18.0% for the fourth quarter of fiscal 2012.

Increases in store payroll expense, advertising expense, online marketing and fulfillment expenses, 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 fiscal year, selling expense was 18.3% of net sales compared to 18.0% in 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. .

General and administrative expenses for the quarter were 1.3% of net sales compared to 3.0% for the fourth quarter of fiscal 2012 with the decline primarily driven by reductions in equity compensation expense and expense related to the incentive bonus accrual.

For the fiscal year, general and administrative expenses were 3.1% of net sales compared to 3.5% in fiscal 2012, again primarily driven by reductions in equity compensation expense and our expense related to the incentive bonus accrual. .

Our operating margin for the quarter was 27.8% for the fourth quarter of fiscal 2013 compared to 27.0% for the fourth quarter of fiscal 2012. For the full fiscal year, our operating margin was 22.8% in fiscal 2013 compared to 22.9% in fiscal 2012.

Other income for the quarter was $2.2 million compared to $1.2 million for the fourth quarter of fiscal 2012. And other income for the full fiscal year was $3.5 million compared to $3.5 million last year. .

Income tax expense as a percentage of pretax net income was 38.6% for the fourth quarter of fiscal 2013 compared to 37.9% in the fourth quarter of fiscal 2012, bringing our fourth quarter net income to $59.3 million for fiscal 2013 versus $61.4 million for fiscal 2012.

For the full fiscal year, income tax expense was 37.6% of pretax net income in fiscal 2013 and 37.2% in fiscal 2012, bringing year-to-date net income to $162.6 million for fiscal 2013 versus $164.3 million for fiscal 2012. .

inventory of $124.1 million, which was up approximately 19.5% from inventory of $103.9 million at the end of fiscal 2012; and total cash and investments of $228.5 million, which compares to $179.8 million at the end of fiscal 2012.

As of the end of the quarter, inventory on a comparable store basis was up approximately 18% and total markdown inventory was up compared to the end of fiscal 2012. We also ended the quarter with $158.6 million in fixed assets, net of accumulated depreciation. .

$21 million for new store construction, store remodels and store technology upgrades; and $7.8 million for capital spending at the corporate headquarters and distribution centers. And that includes $5.4 million for the purchase of a new airplane to replace a plane that had been sold at the end of fiscal 2012.

We currently expect our fiscal 2014 capital expenditures to be in the range of $48 million to $53 million, which includes primarily new store and store remodeling projects, IT investments and the construction of a new office building as part of our home office campus here in Kearney, Nebraska. .

For the quarter, UPTs increased approximately 3.0%. The average transaction value increased 0.5% and the average unit retail decreased approximately 2.5%. For the full fiscal year, UPTs increased approximately 3.5%, the average transaction value increased approximately 2.5% and the average unit retail decreased approximately 1.0%.

Additionally, our average sales per square foot for the year was $461 compared to $475 in fiscal 2012. And our average sales per store was $2.3 million, compared to $2.4 million in fiscal 2012. Buckle ended the year with 450 retail stores in 43 states compared to 440 stores in 43 states at the end of fiscal 2012.

Additionally, our total square footage was 2.271 million square feet as of the end of the year compared to 2.208 million square feet at the end of fiscal 2012. .

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

Good morning, and thanks for joining us this morning. I'd like to start by highlighting the performance from our various merchandise categories for both the quarter and for the full fiscal year. .

Men's merchandise sales for the quarter were down approximately 5% compared to the prior year 14-week fiscal quarter and were up just slightly compared to the same 13-week period last year. Strong categories included denim and casual bottoms and sweaters.

Average denim price points for the quarter increased from $87.40 in the fourth quarter of fiscal 2012 to $88.45 in the fourth quarter of fiscal 2013. For the quarter, our men's business was approximately 44.5% of net sales compared to approximately 44% last year and our average men's price points were flat at $59.90. .

For the full fiscal year, men's merchandise sales were up approximately 1.5% with strong categories, including denim and casual bottoms, knit shirts, sweaters, shorts and accessories. Average denim price points for the full year increased from $87.85 in fiscal 2012 to $89.15 in fiscal 2013.

For the year, our men's business was approximately 41.5% of sales compared to approximately 41% last year and our average men's price points increased slightly from $55.25 to $55.60. .

Women's merchandise sales for the quarter were down approximately 7% compared to the prior year 14-week fiscal quarter and sales were down approximately 1% compared to the same 13-week period in the prior year. Strong categories on the women's side included casual bottoms, knit tops, sweaters, outerwear, accessories and footwear.

Average denim price points for the quarter decreased from $101.10 in the fourth quarter of fiscal 2012 to $98.85 in the fourth quarter of fiscal 2013. For the quarter, our women's business was approximately 55.5% of net sales compared to approximately 56% last year and our average women's price points decreased approximately 6% from $52.95 to $49.80.

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For the full fiscal year, women's merchandise sales were down just slightly with strong categories, including casual bottoms, woven tops, sweaters, active apparel, skirts and dresses, outerwear, accessories and footwear. Average denim price points for the full year decreased from $98.55 in 2012 to $98.40 in fiscal 2013.

For the year, our women's business was approximately 58.5% of sales compared to approximately 59% last year and our average women's price points decreased approximately 2% from $49.05 to $48.15. .

For the quarter, combined accessories sales were down approximately 1.5% and combined footwear sales were up approximately 5% compared to the prior year 14-week fiscal quarter. Compared to the same 13 weeks last year, accessories sales were up approximately 3.5% and footwear sales were up approximately 13%.

These 2 categories accounted for approximately 9% and 5%, respectively, of fourth quarter net sales, which compares to approximately 8.5% and 4.5% for each in the fourth quarter of last year. Average accessory price points were down approximately 6% and average footwear price points were up approximately 15%. .

For the full fiscal year, combined accessories sales were up approximately 2.5% and combined footwear sales were up approximately 10.5%. And these 2 categories account for approximately 8.5% and 6%, respectively, of net sales for the full year, which compares to approximately 8.5% and 5.5% for each in fiscal 2012.

Average accessories price points for the full year were down approximately 3.5% and average footwear price points were up approximately 15%. .

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% for each in the fourth quarter of last year.

For the full year, denim accounted for approximately 44.5% of sales and tops accounted for approximately 30%, which compares to approximately 46.5% and 31% for each in fiscal 2012. Our private label business was up slightly as a percentage of sales for both the fourth quarter and for the year and represented just over 34% of sales for the full year. .

During the quarter, we opened 3 -- completed 3 substantial remodels and closed 2 stores postholiday, bringing our count for the full year to 13 new stores, 8 full remodels and 3 store closures. We also closed 1 additional store just after the end of the fiscal year. As of the end of the year, 341 of our 450 stores were in our newest format.

For fiscal 2014, we anticipate opening 17 new stores, including 4 for spring, 9 for back-to-school and 4 for holiday. And we also anticipate completing 7 full remodels during the year. By season, we anticipate 8 of the remodeled stores will be completed for spring, 7 for back-to-school and 2 for holiday.

Planned new store openings for the spring include stores in Lake Jackson, Texas, which already opened in February; Anchorage, Alaska, which will be a new state for us; and 2 in the Dallas, Texas market.

Also please note that 4 of our planned new stores for the year will be in Mills projects, which are a hybrid of outlet, entertainment and full-priced retail, and we plan on operating these in our standard format. .

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

[Operator Instructions] Our first question is from Edward Yruma from KeyBanc. .

Specifically on the G&A number, Karen, I think you did cite that incentive comp accrual was one of the reasons why it was down year-over-year. But I think the $4.5 million was the lowest it's been since '03. I was wondering if you could talk a little bit more about the drivers there or if there was a reversal. .

There was a reversal, Ed. And we had been accruing in Q1 through Q3 for achieving both performance targets for 2013 grants of restricted stock, and we did not attain those performance targets. So there was a reversal of the accrual related to the fiscal 2013 grants from the prior 3 quarters.

So the expense had been -- total restricted stock expense have been averaging about $2.5 million per quarter. And with the true-up in the fourth quarter, the fourth quarter was actually a credit of about that same amount.

Does that help?.

Got it.

So of about $7.5 million then?.

Well, the $2.5 million per quarter is for the total expense, so the reversal is only related to the 2013 grants. There is also expense related to prior year grants. .

Got it. And just a bigger-picture question, I think the spread between your inventory growth and your sales growth is the widest it's been in some time.

I guess, just how do you feel about inventory overall, given the promotional environment? And how quickly can you get inventory more aligned with sales?.

Ed, this is Dennis. Well, last year, we came off of the holiday season very low in denim. And part of that was in the gals'. We were still transitioning from our previous maker of our BKE brand and working with different vendors.

So our inventory in our gals' denim was very low at the beginning of last year as well as the men's was coming off a strong holiday season. So we've increased our inventory on both guys' and gals' denim to take care of our guest.

Also we found that last year, we had problems with some deliveries with the Chinese New Year seems to be extending each year with the workers not coming back to the plant. So we brought in more product to be ready for the spring season in January than previous. And so we feel good about that.

Also it's still a small part of our business, but some of the children's product that we've added in our stores contributes to the growth as well. And we feel good about our inventory. And I think you'll see, we will manage that well through the year. .

And our next question is from Paul Alexander from Bank of America. .

Just a follow-up on that inventory question.

Could you break down what's inside the elevated markdown inventory? Is any of it some of this escalated investment in denim? And why is it that with a heavier investment in denim, the women's denim business is not performing as well?.

Well, we're coming off multiple years of very strong denim performance, but we still have a very good regular-priced business and feel good about our selection. Our total markdown dollars are up slightly. But as a percent of our inventory, it is down from the year before. .

And if I could just get a follow-up. On the Internet sales, you noted that on a comparable week basis, they actually grew 7%, but that's still below the industry growth rate for e-comm.

Why do you think your online growth has been weaker than peers? Do you need to invest in systems there? And are you at all worried that you might be losing online share?.

That's a good question. We believe we have not been promotional with our online sales and have no -- had not had any free shipping specials. We continually run our business regular-priced like our stores.

And also over the last year, we have added that if a guest orders or buys something, that they can special-order it out of the store and have free shipping and pickup at the stores. And I know that has cut into the online business as well. So we think it's been a good way to run the business in a profitable way. .

Our next question is from Simeon Siegel from Nomura. .

I think you said you posted a 40 basis point merch margin increase in the fourth quarter, which seems impressive in light of the promotional environment.

Can you talk to where you'd expect merch margin trends to go forward? And then just quickly, Karen, given the puts and takes between the selling and SG&A that you're referring to, can you just give us any color on the expected SG&A dollar growth for 2014?.

Do you want to go first, Karen?.

Yes. I think on the expect SG&A for 2014, I think we would see that kind of on a more normalized basis. The reversal in the fourth quarter was really a one-time reversal related to those 2013 grants, where the performance targets were not achieved. And then during every quarter in 2014, we'll continue to evaluate the target for the new grants.

With the 2013 grants forfeited, there'll be a slight reduction in expense because the expense is spread over a period of time, so we'll have a little bit of a slight decrease from not having those grants included in the quarterly accrual. .

In regard to the margins, I mean, we feel good about our selection and where we're at as we start the year. But our margins have continually improved and they're at a level now that we don't promise continued improvement there. But we will do our best to work at improving that. .

Our next question is from Kate Fitzsimons from JPMorgan. .

My question is on CapEx. It's going up pretty sizably this year compared to last year. How should we think about this as it relates to other uses of cash in 2014? You guys have historically been pretty generous in returning excess cash to shareholders, so just any thoughts there would be helpful.

And then I also noticed that you guys recently appointed a new EVP of Stores.

Just what do you expect her focus to be in 2014? And what should we be on the lookout for in 2014?.

Yes. Regarding the CapEx, we have been short of office space and -- at our home office and have finally started or soon will start on our building to just make it more efficient and a better situation work environment as well as get people the space they need to do their business, and that's the biggest part.

We also will be adding -- the 17 stores is up from the last few years just because we found opportunities we thought would be great long-term investments as well as the remodels jumped substantially this year, here again based on opportunities that we felt were very good for our future stores.

And some of that is just a matter of timing with the spaces in the mall or the lifestyle centers to be available to make the right situation. So we think those are all good investments. On our Executive VP of Stores, Kari Smith, who's been with us about 35 years, she's been an excellent leader with our sales team and management.

And we're just involving her even more into the total business in addition to leading the stores. And you'll -- she just does a fabulous job, and we'll just increase her involvement. But in total, you probably won't see a big change from outside the company. .

[Operator Instructions] And we'll go to John Kernan from Cowen. .

A quick question on the driver of comps. AUR and transactions has been under some pressure for a while now and UPT has really been a big driver.

Can you talk about what is driving that? And what can continue to drive that going forward?.

Well, I think our branded denim price points are still working well and that has been a plus there. But I think we spent a lot of time on developing stronger leaders in our stores and teams, and they continue to improve on servicing the guest and putting outfits and creating loyal guests.

And I think that's been a big plus there as far as developing our business and improving the transaction value. .

Okay. And then just on some of the CapEx investments, I think, are centered towards some IT stuff and online initiatives.

Can you talk about some of the omnichannel initiatives you're putting in place now to see -- to drive some pickup in the e-comm business?.

And I think on the CapEx, like Dennis mentioned, I mean, looking at the increase for next year, the biggest part of that would be the increase in the number of store projects with the increase in new stores and the increase in remodels, and then the office building.

And then every year, we have investments in technology, and so that's kind of a constant. I think right now, we're working on programs for customer loyalty, like we have for a couple of years, and some things that way that might require a little bit more investment this year than in the past.

But otherwise, I mean, that's just a constant focus, I think, of investing in technology to improve things, to make them better and make it better for our guests and our teams in the stores. .

Okay.

And then just any comments around some of the newer markets and store performance in those newer markets that you've gone into recently?.

I think in the last year, all the store openings were in existing states. But we were very happy with our openings last year. And we continue to make progress in different regions. Again the biggest impact on our business in the stores is our manager and the teams they develop. And so region-wise, I don't see any great exceptions to different areas.

It basically comes down to the quality of the store manager and the experience the guest has there that has an impact on the store. .

Our next question is the line of Peter [indiscernible] from [indiscernible] Capital Management. .

I have 2 related questions to your primary demographic.

First, do you think you're being negatively affected by the so-called omnichannel, where expectations are for 24/7 online, mobile price apps kind of experience, where you might actually be being showroom-ed or fitted at Buckle, and then having customers make purchases somewhere else online?.

So I think the key to our success, along with our people, is in our selection with our brands, we almost are probably 70% to 80% exclusive styles in most seasons. And so to find that exact product or sometimes it's a exclusive fit for us as well as design so that the guest cannot go elsewhere to buy that product.

And then among our own brands, we have several of our own labels in both men's and women's that our teams merchandise and design and are also exclusive and not only have a great look, fit but has unique styling and has been very successful as well. So it would be very difficult for somebody just to shop us, and then go elsewhere to make a purchase. .

Okay, great. That's very helpful.

Now my follow-on is what is it -- in your primary demographic, do you think that you're seeing any signs that they just may not have the same kind of discretionary purchasing power that they once had? Or do you think that they're delaying purchases compared to historical norms?.

Well, I'm not sure how to approach that part of it. But I think the misunderstanding is that we are only a high school and college shop, where a lot of investors think that's our only customer.

And we've actually developed where some of our stores, where we have a little longer history, will tell us that they have more guests over the age of 25 than under the age of 25.

So we are able to sell to junior high, high school, college, and we have -- majority of probably of our store managers and office staff are probably in their 30s, give or take, or a little older and they shop our stores extensively, and that's kind of how we see our guests, that once they realize that we can fit them and put the outfits and we have such a wide variety of styling and categories, lifestyles for our guests, that we continue to expand that guest.

And so for some of our guests, yes, maybe there is some economic issues. But overall, we have a wide selection and, I think, are in pretty good shape. .

[Operator Instructions] We have a question from Elise DiVincenzo from First New York. .

Just a question on the inventory.

Just given the magnitude of the increase year-over-year, do you think you can give some color around how much markdown inventory was up just so we have a sense? And then secondly, maybe if you can just clarify on the denim inventory, I think, Dennis, you said you were underinventoried last year and so this year, it should be up or it is up, but it's down as a percent of the mix.

So does that mean that other categories were up even more than that 20% growth? And just help me rectify those 2 statements. .

Okay. I would say most of the increase would be in the denim inventory. Our other categories overall were -- are pretty much right on target and we feel good about that. The markdown dollars, if I understood the question right, is up just slightly in dollars. But as we mentioned earlier, as a percent of our total inventory, is down.

Did we answer your question okay?.

Okay. So markdown is down as a percent of the inventory.

And then denim is also down as a percent of the inventory?.

We don't break that out, unless you have another comment. .

No, okay. .

And at this time, they are no further questions in queue. .

All right. Well, no further questions, we want to thank everyone for joining in the call today and enjoy the weekend. .

Thank you. And ladies and gentlemen, this conference will be made available for replay after 11:00 through March 28. You may dial the AT&T Executive Replay System at any time by dialing 1 (800) 475-6701 and entering the access code 321394. International participants can dial (320) 365-3844. That does conclude our conference for today.

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