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 Secretary; and Tom Heacock, Treasurer and Corporate Controller..

As they review the operating results for the second quarter, which ended August 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 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.

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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 these calls should not be relied upon as the information may be inaccurate.

And I would now like to turn the conference over to your host, Karen Rhoads. Please go ahead. .

Thank you. Good morning, everyone. Thanks for joining the call.

Our August 21, 2014 press release reported that our net income for the 13-week second quarter ended August 2, 2014 was $24.5 million or $0.51 per share on a diluted basis, and that compares to net income of $25.1 million or $0.52 per share on a diluted basis for the prior year 13-week second quarter that ended August 3, 2013.

Our year-to-date net income for the 26-week period that ended August 2, 2014 was $61.8 million or $1.29 per share on a diluted basis. That compares to net income of $62.7 million or $1.31 per share on a diluted basis for the prior year 26-week period ended August 3, 2013. .

Net sales for the 13-week second quarter increased 1.4% to $235.7 million compared to net sales of $232.5 million for the prior year 13-week second 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 online sales, which are not included in comparable store sales, increased 1.7% to $17.1 million. Net sales for the 26-week year-to-date period increased 1% to $507.4 million, compared to net sales of $502.2 million for the same period in the prior year. .

Comparable store sales for the year-to-date period were down 7/10 of 1% in comparison to the same 26-week period in the prior year. And online sales, which again are not included in comparable store sales, increased 2.1% to $38.6 million. .

Gross margin for the quarter was 40.3%, down approximately 30 basis points from 40.6% for the second quarter last year. The decrease was driven by deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline. Merchandise margins for the quarter were essentially flat. .

For the year-to-date period, gross margin was 41.8%, down approximately 30 basis points from 42.1% for the same period last year. The decrease was driven by deleveraged occupancy, buying and distribution expenses, resulting from the comparable store sales decline. Merchandise margins were, again, essentially flat. .

Selling expense for the quarter was 19.7% of net sales compared to 19.3% for the second quarter of fiscal 2013. Increases in store payroll 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 18.5% of net sales, compared to 18.4% for the same period in fiscal 2013. An increase in store payroll expense was 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 4.2% of net sales compared to 4.4% for the second quarter of fiscal 2013, with the decline primarily attributable to reductions in equity compensation expense.

For the year-to-date period, general and administrative expenses were 4.0% of net sales compared to 4.1% for the same period in fiscal 2013, with the decline primarily attributable to reductions in equity compensation expense. .

Our operating margin for the quarter was 16.4% compared to 16.9% for the second quarter of fiscal 2013. For the year-to-date period, our operating margin was 19.3% compared to 19.6% for the same period last year. Our other income for the quarter was $260,000 compared to $507,000 for the second quarter of fiscal 2013.

And other income for the year-to-date period was $605,000 compared to $857,000 last year. .

Income tax expense as a percentage of pretax net income was 37.3% for the second quarter of fiscal 2014 compared to 37.0% in the second quarter of fiscal 2013, bringing second quarter net income to $24.5 million for fiscal 2014 versus $25.1 million for fiscal 2013.

Year-to-date income tax expense was also 37.3% of pretax net income for fiscal 2014 and 37.0% for fiscal 2013, bringing year-to-date net income to $61.8 million for fiscal 2014 compared to $62.7 million for fiscal 2013. .

Inventory of $128.2 million, which was down approximately 4% from inventory of $133.6 million at the end of the second quarter of fiscal 2013. And total cash and investments of $230.5 million, which compares to $228.5 million at the end of fiscal 2013 and compares to $168.3 million at the same time a year ago. .

As of the end of the quarter, inventory on a comparable store basis was down approximately 5.5% compared to the same time a year ago, and total markdown inventory was up compared to the end of the second quarter last year. We also ended the quarter with $166.0 million in fixed assets, net of accumulated depreciation. .

$17.2 million for new store constructions, store remodels and store technology upgrades; and $5.5 million for capital spending at the corporate headquarters and distribution center. .

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

For the quarter, UPTs increased approximately 2%, the average transaction value increased approximately 4%, and the average unit retail increased approximately 2%. For the year-to-date period, UPTs increased approximately 2.5%, the average transaction value increased approximately 3% and average unit retail increased slightly. .

Buckle ended the quarter with 456 retail stores in 44 states compared to 452 stores in 43 states at the end of the second quarter of fiscal 2013. Additionally, our total square footage was 2.309 million square feet as of the end of the quarter compared to 2.267 million square feet at the same time a year ago. .

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

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 1.4% net sales increase for the quarter. Men's merchandise sales for the quarter were up approximately 6% with strong categories including denim and casual bottoms, knit shirt, shorts and accessories.

Average denim price points for the quarter increased from $89.95 in the second quarter of fiscal 2013 to $92.85 in the second quarter of fiscal 2014. For the quarter, our Men's business was approximately 44% of net sales compared to approximately 42% last year, and our average men's price points increased slightly from $50.10 to $50.40..

Women's merchandise sales for the quarter were down approximately 2% with strong categories including sweaters, active apparel and footwear. Average denim price points increased from $97.15 in the second quarter of fiscal 2013 to $98.65 in the second quarter of fiscal 2014.

For the quarter, our women's business was approximately 56% of sales compared to approximately 58% last year, and our average women's price point increased approximately 2.5% from $42.90 to $43.95..

For the quarter, combined accessory sales were up approximately 1% and combined footwear sales were up approximately 2%. These 2 categories accounted for approximately 9.5% and 6%, respectively of second quarter net sales, which compares to approximately 9.5% and 6% for each in the second quarter last year.

Average accessory price points were up approximately 6.5% and average footwear price points were up approximately 4%. .

For the quarter, denim accounted for approximately 36.5% of sales and tops accounted for approximately 32.5%, which compares to approximately 37.5% and 32% for each in the second quarter of last year. .

Our Private Label business was essentially flat as a percentage of net sales for the quarter and continued to represent approximately 32% of sales. .

During the quarter, we opened 8 new stores, closed 2 stores and completed 3 substantial remodels. As of the end of the quarter, 356 of our 456 stores are in our newest format. For fiscal 2014, we now anticipate opening 16 new stores in total, including 4 in September-October, and 3 for holiday.

We also anticipate completing 18 full remodels during fiscal 2014, including 3 that have already moved into their remodeled space in August, 4 additional in fall and 2 for holiday. And with that, we'll open it up to your questions. .

[Operator Instructions] And that comes from the line of Simeon Siegel of Nomura Securities. .

So you did a great job clearing for inventory and you didn't take a hit to merch margin.

You also didn't get a meaningful list of sales, so any color there? And I guess, what's the right way to think about inventory or gross margins, looking further out? And then Karen, just quickly, it's not a large absolute number, but any quick thoughts on why the receivables went up so much?.

Yes. I think, as we mentioned at the last call, that we had planned to bring in some of the spring/summer inventory early compared to the year before and then that kind of played out as planned. And we're very comfortable with our inventory and our markdown level at this point. .

And on the receivables, the biggest piece of that increase would be construction allowances from the new stores that are currently either completed or in progress. .

And the next question from the line of Tom Filandro of SIG. .

I got a question about the transaction performance. It's been challenging over the past couple of months. You got several weeks of high-volume back-to-school selling complete. I was wondering if you're seeing any change in the transaction environment.

And then on denim, specifically, the classification, at least some are suggesting the classification is trending lower this year. Could you guys provide us an update on what you're experiencing in denim, across both men's and women's? And maybe Pat and Robert can offer their insights as well.

And then, I have one follow-up question on the digital pilot of your loyalty program, I don't know if that's underway yet. If you can give any details on that, I'd greatly appreciate it. .

Okay. Well, as the script had the men's denim. We had some good selling there. And on the ladies, we're seeing a variety of changes in the fabrics, the -- a wider selection of different fits and styles, bottom openings. We think, the selection we have, going into the fall season, will do us well.

But there certainly is a variety of changes, from different rises and bottom openings and just the wide variety of colors going on there. So we're looking forward to the fall season.

Bob or Pat, do you have anything else to add on that?.

Yes, I think on the men's side, just the additional fabrics, making denim work for more things than it did before, from a comfort in. And the stretch side on the men's side, it's probably been a big help to us, in the lighter weight denim. .

And on the women's side, I would just say, coming out of spring and summer, we really had a nice response to like, denim crops or denim shorts, some alternatives fashion bottoms that are lighter weight, dresses, that type of things. So just a bigger variety of requests on the women's side.

And in tune with that, our full-length denim, on the fabrics, again, and finishes, we feel good about the selection and have confidence in the sales team to take it to the guests to show them the newness. So I'd say, overall, a good picture. .

Karen, do you want to take the... .

On the loyalty program, we have not started piloting the digital loyalty. There's still working, at this point in time, on the CRM database. So it will be fiscal 2015 before we have electronic loyalty. .

Did we get all the questions answered question, Tom?.

Dennis, the first question was just any comments on the transaction performance being challenging? First couple of months here, you've got some big volume back-to-school weeks complete, behind you.

Just curious if you're seeing from the consumer standpoint, any change in the way the consumer is reacting out there versus a year ago or at least in the spring/summer season?.

Well, our policy is not to comment on the present month. So I don't know that I can really answer that question, Tom. .

And the next question from the line of Kate Fitzsimons of JPMorgan. .

My question's on the sourcing side. I was wondering if you guys are viewing any changes in cotton prices and whether AUCs could be an opportunity, as we head into 2015. Also just you ended the quarter with a healthy cash position.

Just can you speak to how you are looking at distributions of cash to shareholders potentially into the back half?.

Regarding the cash position, we just review that continually at board meetings and looking at our opportunities, so we will continue that policy. The cotton prices is a benefit to some degree, but in certain places, with some of the new fabrics that we want to do or some new finishes and some of the labor kind of offsets that.

So I don't know, for us, if that's going to be a great advantage that we can count on, just because the price of cotton is lower now. .

Okay.

So it's all right to think maybe AUCs are neutral next year or flat?.

Yes, I would guess, at this point, that would be -- I would be comfortable saying that. .

And the next question is from the line of John Kernan of Cowen. .

It's helpful color on the new stores and the remodels in the second half.

Can you help us understand where your long-term real estate plans sit? And in terms of where you are in terms of total remodels and how much more of the store base can be remodeled?.

We'd probably be able to give you a better update on the next call on that. We're still going through negotiations and planning for next year on remodels. We -- I would not expect fewer remodels next year than we had this year, just based on opportunities.

And as far as new store growth, we will continue kind of our strategy of looking at the opportunities and what makes sense for us, and where we see the retail markets going in the future to decide new stores and not set a planned number of stores and then work to hit that number. .

And then just any comments on how your viewing the promotional competitive environment as back-to-school evolves?.

I think, the promotional environment continues to be pretty much the same, as we've seen it for quite a while, maybe even a little more.

That's why we work with our exclusive and developing own brands and really have in fashion and details that other people -- kind of the way we see a lot of them is that they're just trying to hit the lowest price and sell by price. And we're looking at the total idea of fashion, style, comfort and to give the exclusive product.

And we also work with our brands as well to develop exclusive product that is special and gives the guest to reason who want to buy. .

And the next question comes from the line of Steve Marotta of CL King & Associates. .

As it pertains to the last call, there was commentary surrounding an expectation that inventory would actually be up at the end of the second quarter on a year-over-year basis, but it didn't happen.

Can you talk a little bit about the dynamic and reconcile the comments with how inventory is down year-over-year? What happened during the quarter to change that?.

Well, as always, the flow of the product sometimes comes in a little bit later than you planned, or maybe there's styles that didn't get approved based on the quality or not hitting the standards or the requirements that we had, so that could have been some cancellations and such.

But for the most part, I guess, we're trying to be a little conservative on our estimate for the second quarter, just to not set too big of expectation, but there's so much that goes on during the quarter. I'd just say it's the kind of the flow of the product sometimes makes the difference there. .

Okay. And then just a follow-up from an inventory standpoint. You mentioned that the markdown inventory, as a percent of the total, is up on a year-over-year basis. Can you quantify that? And I'm even a little surprised, in light of the decline in inventory on a year-over-year basis, that markdown inventory would be up. It'd usually be the opposite. .

I mean, I think, the -- sometimes that falls more on the timing and such. And like I say, the -- we're comfortable with our inventory levels and where we're at.

I don't -- anybody else have any other comments?.

I don't know that we ever quantified how much markdown inventory there is or what increase it is. And looking at the buckets, the increase was really in the first couple buckets. So like Dennis said, we do feel good about where we're at. .

[Operator Instructions] And you have a question from the line of Ed Yruma of KeyBanc Capital Markets. .

Dennis, just in terms of store performance, we've seen a big tick down in corn prices. I know you have a lot of exposure to agricultural areas.

Historically, when you've seen this kind of move in commodity prices, have you seen any kind of impact to your business?.

What we see is just the performance of our store manager and what's new in the fashion lines, and what our selection is, that has the biggest impact. I don't study the farm programs or have any knowledge of where they get extra money for this or that and as such, so you'd have to talk the John Deere on that. .

Got it. And then in terms of trends that you guys are excited about, you highlighted some interesting ones on the denim side.

I guess, anything you saw at Magic [ph] or that interests you for your tops business?.

Yes, we had a good week of meetings and the teams were happy with some of the ideas. They find it's not like a long time ago, where the shows really made a big difference of what's going on. It's just another week of continually developing new product and playing off winners and looking for newness to build on for the future or test different styles.

So it's just one of many weeks that we're working on product to bring some freshness to our selection and give the guest what we want -- what they want. .

And you have a follow-up question from the line of Tom Filandro of SIG. .

Just a follow-up, two questions.

One, private label, I may have missed this earlier, can you just update us on the private label performance during the quarter? What -- how should we think about your private label positioning for the balance of the year? And then also, it looks like you're -- you've elevated your positioning in girls and boys offerings.

I was hoping you can offer some details on how that's trending? Have you had any learns? And I'm not sure if that's in the all stores.

And if it's not, what level of incremental sales did you experience from putting those offerings in?.

Well, we're feeling good about our private label. We would expect it to be percentage-wise probably pretty equal in the last year, maybe up slightly. But we're happy with our progress there and the selection we have with our different labels.

And the little girls and boys, we're continue to see nice growth, it's still a very small part of our business, but we like what's going on there.

And Pat and Bob, can you just comment on how many stores we have those in?.

Our private [indiscernible] for an all stores for the denim program, and then we're continually evaluating the number for fall for tops. Currently, for second quarter, we are in 130 stores for the top program for little girls. .

And for youth boys, we're about 200 doors, complete tops and bottoms, and 225 in bottom, I mean, just in denim only. And so far, as you said, the youth response has been pretty good. .

Great.

And Dennis, can you just be more specific on the private label penetration for the quarter?.

32%. So basically even with the year ago. .

And the next question is from the line of Lee Giordano of CRT Capital. .

Can you talk about your new store performance and how they're working out, relative to your expectations? And then also, do have any specific areas in the country where you're looking to expand? Or is it pretty much a broad-based focus?.

Yes. We've been pleased with our new openings. And also an update with the Mills project that we've opened, our regular priced stores. That has worked out well. And we had no targeted areas. We're just continuing to look at the -- all of our states and the surrounding areas to see what opportunities that we would be confident in. .

And there are no further questions in the queue. Please continue. .

All right. Well, I think that concludes our part of the call. So at this time, we'd like to thank everyone for joining us again, and have a great day. .

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