Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Earnings Release Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded.

Members of Buckle's management on the call today are 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, Vice President of Finance, Treasurer and Corporate Controller..

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And now I'd like to turn the conference over to our host, Ms. Karen Rhoads. Please go ahead. .

Thank you, and good morning, everyone. Thank you for joining the call this morning.

Our May 21, 2015, press release reported that net income for the 13-week first quarter that ended May 2, 2015, was $33.6 million or $0.70 per share on a diluted basis compared to net income of $37.3 million or $0.78 per share on a diluted basis for the prior year 13-week first quarter that ended May 3, 2014..

Our net sales for the 13-week first quarter decreased just 0.1% to $271.3 million compared to $271.7 million for the prior year 13-week first quarter. Comparable store sales for the quarter were down 2.2% in comparison to the same 13-week period in the prior year and our online sales increased 12.9% to $24.2 million..

Gross margin for the quarter was 41.9%, down approximately 120 basis points from 43.1% for the first quarter last year. The decrease was driven primarily by deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline. Additionally, our merchandise margins for the quarter were down 25 basis points..

Selling expense for the quarter was 18.1% of net sales compared to 17.6% of net sales for the first quarter of fiscal 2014.

Increases in store payroll expense, online fulfillment and marketing expenses, as well as 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 4.3% of net sales compared to 3.7% of net sales for the first quarter of fiscal 2014 with increases as a percentage of net sales across several expense categories as result of the comparable store sales decline for the quarter..

Our operating margin for the quarter was 19.5% compared to 21.8% for the first quarter of fiscal 2014. Other income for the quarter was $736,000 compared to $345,000 for the first quarter of fiscal 2014..

Income tax expense as a percentage of pretax net income was 37.3% for the first quarter of both fiscal 2015 and fiscal 2014, bringing first quarter net income to $33.6 million for fiscal 2015 versus $37.3 million for fiscal 2014..

inventory of $129.6 million, which was up approximately 8.5% from inventory of $119.2 million at the end of the first quarter of fiscal 2014; and total cash and investments of $202.5 million, which compares to $203.3 million at the end of fiscal 2014 and $237.8 million at the same time a year ago..

As of the end of the quarter, inventory on a comparable store basis was up approximately 5% compared to the same time a year ago, and total markdown inventory was up on an absolute dollar basis but was down as a percentage of total inventory. We also ended the quarter with $176.2 million in fixed assets, net of accumulated depreciation. .

$7 million for new store construction, store remodels and store technology upgrades; and $4.3 million for capital spending at the corporate headquarters and distribution center..

We expect our fiscal 2015 capital expenditures to be in the range of $35 million to $39 million, which includes primarily new store and store remodeling projects, IT investments and the completion of a new office building in Kearney, Nebraska, which some of our teammates moved into during April..

For the quarter, UPTs decreased approximately 0.5%, the average transaction value increased approximately 4% and the average unit retail increased approximately 4.5%..

Buckle ended the quarter with 463 retail stores in 44 states compared to 450 stores in 43 states at the end of the first quarter of fiscal 2014. Additionally, our total square footage was 2.345 million square feet as of the end of the quarter compared to 2.266 million square feet at the same time a year ago..

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

Good morning, and thanks for being with us this morning. I'd like to start by highlighting the performance from our various merchandise categories for the quarter..

Men's merchandise sales for the quarter were up approximately 6%, with strong categories including denim and casual bottoms, woven and knit shirts, shorts and accessories. Average denim price points increased from $92.75 in the first quarter of fiscal 2014 to $94.15 in the first quarter of fiscal 2015.

For the quarter, our men's business was approximately 43.5% of net sales compared to 41% last year, and our average men's price point increased slightly from $54.85 to $55.05..

Women's merchandise sales for the quarter were down approximately 4% with strong categories including woven tops and footwear. Our average denim price points decreased from $100.15 in the first quarter of fiscal 2014 to $97.85 in the first quarter of fiscal 2015.

For the quarter, our women's business was approximately 56.5% of sales compared to 59% last year, and our average women's price points increased approximately 7.5% from $47.40 to $51.05..

For the quarter, combined accessory sales were up approximately 2%, and combined footwear sales were up approximately 1.5%. These 2 categories accounted for approximately 8% and 6.5%, respectively, of first quarter net sales, which compares to 7.5% and 6% for each in the first quarter of last year.

Average accessory price points were up approximately 14.5%, and average footwear price points were up approximately 6%. For the quarter, denim accounted for approximately 42% of sales, and tops accounted for approximately 29.5%, which compares to 43.5% and 28.5% for each in the first quarter of last year..

Our private label business was up slightly as a percentage of sales for the quarter and represented approximately 1/3 of sales. During the quarter, we opened 3 new stores and completed 5 substantial remodels. As of the end of the quarter, 372 of our 463 stores were in our newest format.

For all of fiscal 2015, we still anticipate opening 9 new stores in total, including 1 planned for back-to-school and 5 planned for holiday, and we also anticipate completing 14 full remodels in total during the year, including 1 store that has already moved into its remodeled space in May, 5 planned for back-to-school and 3 for holiday..

And with that, we'll welcome your questions. Operator, we're ready for questions whenever you are. .

[Operator Instructions] And our first question comes from the line of Ed Yruma from KeyBanc Capital Markets. .

This is Jessica Schmidt on for Ed.

My first one, can you just talk a little bit more about the inventory expansion this quarter? I guess, was this planned? Was there some impact from the West Coast port delays? And how do you feel about the quality of the inventory?.

Jessica, this is Dennis. The inventory, we built up some of the men's inventory to -- last year, we've got a little short on shorts for the summer months, and so we wanted to have a better presentation there as well as in the accessories and some of the top categories. So for the most part, it was planned.

There was a little bit of change to the inventory from the port strike that had a small effect. But we feel the quality of the inventory is very good, and looking forward to second quarter. .

Okay, great. And then can you discuss some of the trends you're seeing in denim, particularly in women's? I know the category has been tough but just wondering if you're seeing any encouraging signs. .

Pat, do you want to go first with that?.

Sure. We're seeing some nice diversity in the trends, that were more dark and clean earlier on. And now we're seeing some -- a mix of light to dark, some destruction in the finishes, just [ph] good fresh look, and we're feeling pretty good about what that means to the category. .

I might add also, Jessica, that we've added a couple of vendors, and we'll have probably a wider selection of brands as well as our private label along with all the styles in legs silhouettes for back-to-school. .

And our next question comes from the line of Paul Alexander from BB&T Capital Markets. .

Guys, can you talk a little bit more about the gross margin decline? What was the driver of the decline in merchandise margins? And then did anything happen to change the leverage point for buying and occupancy? What else is going on in that line, because it seems like it was a much more volatile change in gross margin than we've seen from you guys in a very long time.

.

I think on gross margin -- the deleverage, we've always said that we need low to mid-single-digit comps to provide leverage in the cost of goods sold section on the buying and distribution and occupancy costs, and comps were for negative for the quarter. But when we give that number, it's actually kind of an annualized number.

And in the first half of the year, when the absolute dollars of sales are smaller, that leverage point is actually a little bit higher than it would be in the back half. When the absolute dollars are greater, then the comp required for leverage isn't quite as high.

And so we give that number, it's on an annualized basis and not really a quarter-by-quarter basis, if that makes sense. And then, Dennis, and just for the audience, Mr. Nelson is calling in remotely, so I'll maybe pass the question regarding the merchandise margin over to you, Dennis. .

Well, we've just been running a very high margin. We feel -- as I mentioned, we feel good about the quality of our inventory and feel the team has done well. And there's -- we see it more of a hiccup as -- than any kind of a trend. .

And just one follow-up. Can you talk about the progress in e-commerce growth. It's a second quarter of better growth there than recently.

Did you continue to invest more in e-mail or imaging -- imagery, what else is going on there and -- or is this related to more clearance through the website?.

Kyle, do you want to take that one?.

Sure, this is Kyle Hanson, and I work with the e-commerce team. One of the things that we have been doing is just testing some different marketing programs and marketing strategies as well as what you mentioned and Pat had mentioned on the last call, with some just updated imagery on the website. And we're happy with the progress there. .

And we have a question from the line of Lee Giordano from Sterne Agee. .

Can you talk some more about sales performance differences by region and if you think weather might have been a negative factor at all in the quarter? And then secondly, any update on the kids effort?.

Okay. For the most part, I would say on the some of the northern stores that had -- normally gets a good flow of traffic from Canada, that we've seen a little slowness there. And select markets, maybe in the North Dakota, a little bit of a hiccup on the little bit of the oil slowness.

But overall, I'd say it's pretty much by store and the quality of what the manager and the team is doing on that. And the kids, we take kind of a slower approach in the second quarter, being careful on what we're doing with inventory, but we're ramping up for back-to-school with more storage.

Bob, do you want to mention and Pat on the kids level?.

For the men's business, we're going to go in a small way to all stores with the youth. And in 300 stores, there will be a good inventory. And so far the response has been very good, although still a small part of the business. .

Yes. I would also echo what Bob has said on the men's side, a little bit quieter into the second quarter. Then we take a stronger position for third quarter. But we will be in all stores in a small way for little girls as well. .

[Operator Instructions] We do have a question from Simeon Siegel from Nomura Securities. .

Karen, you've done a great job of keeping SG&A relatively constant with sales historically. Clearly, sales were lighter, to your earlier point, which may just be the answer.

But can you talk to the deleverage on the expense line this quarter? And if sales do remain challenged, is there any room to pull back on those expenses, or would you expect more pressure there? And then just as a corollary, you delevered last quarter as well.

So both of these came at the same time that e-commerce has actually been gaining traction, to Paul's point.

Are you doing anything differently there online to maybe drive that growth? Could that help explain some of the deleveraging initiatives?.

A little bit of the deleverage would be some of the growth in various departments kind of building up the infrastructure to support future growth. So we do have areas there that are making sure that we are prepared internally as we continue to grow.

Kind of as we mentioned too, sales, salaries [ph] at the store level would have been one of the categories that were up, and obviously, that's one that with stronger sales, we're able to gain a little bit of leverage.

And the district leaders continue to work with our stores on being smart about their scheduling and really have a focus on that, so they do pay great attention to that.

A little bit of it in the G&A section, I think that there would be areas that we could continue to look at that to see if there is some areas for improvements and pulling back, just as you had mentioned, if sales would continue to be a little bit softer.

Does that answer question?.

Simeon, also, I might add that the merchandise team is continually being involved with the online team as far as the presentation of the product online and reviewing photo shots and what might make it more appealing online or show the quality of the product. And so I think that had some small benefit as well to the online sales. .

And we do have a question from Liz Pierce from Brean Capital. .

Just following up on that question, Dennis, is it the same team that's buying for both online and the stores?.

Yes. .

Okay.

And then is it Q1 when you guys started to incorporate in the comp the online? Is that right?.

Correct. .

That is correct. .

So if we look at last year's quarter of negative 0.9, if you -- I mean, how do we put this on an apples-to-apples basis, is my question. .

Karen, do you want to take that one?.

On the comparable store sales, Liz?.

Yes. If we took out the online for this year to compare it to last year or add -- last year, add online in. I'm just kind of curious. .

We're not going to do that anymore, because we've combined them into one number. So we're going to give a breakdown of comps excluding Internet and including. I think, we made that change at the start of the fiscal year, and I think we'll be consistent with that going forward. .

Right. So I was just curious what last year -- so you're not going to disclose what last year's would have been on an apples-to-apples basis? That was my question. .

We did call out there's 12% increase or 12% plus increase this year on the online, so... .

Correct. .

Right.

And then Dennis, in terms of adding more brands and private label to your comment a minute ago about denim, are other things coming out? Other brands, other product? I mean, how are you going to make the space for -- in the store? Because one of the things you guys do so well is kind of create that excitement around outfits and all the different styles.

So I was just curious how you're going to do that. .

Well, I think, on certain brands, there might be less selection than before. It will still be a great selection and just kind of fine tuning that and adding some new brands, some new styles and fits that will complement what we have going on.

And so I think our total number, like I'm thinking on the gals' side at the moment, will not necessarily be much different in total inventory, but we'll have just even a better variety of product and fine tuning some styles on our mix that will be, I think, be very successful for us. .

Okay, because especially if you're adding both product for girls -- little girls and little boys, so is it just that we'll see less breadth or less depth or a combination?.

It will be a little less depth on certain brands or certain fits from previous. .

And I presume that with -- as the online business is growing, maybe some of that can be made up online.

Will those sizes be available?.

Yes. .

Okay.

And then Karen, what do you expect ending inventory to be for Q2?.

Actually, Liz, I'll all pass that question back over to Dennis as well. .

Well, we don't really forecast too much there, but I would guess that it would be at the level we're at now, maybe slightly less, somewhere in that area. .

[Operator Instructions] I do have a question from Paul Alexander from BB&T Capital Markets. .

Just one follow-up question on promotions. Was there any increase in promotions this quarter? And then second, I know that there was a shift in the timing of the spring break promotion.

What was the impact of that shift on the quarter?.

Bob, do you want to discuss the promotions?.

Yes, the spring break promotion moved out almost a month due to the port delay.

With the Easter shift, I don't know that we could get you an exact figure of the change in there, but it did move a month, and then we did start -- this wasn't in Q1, but the one new promotion that we did is starting and going right now is the Fox promotion, but otherwise, we are basically annualized in all the promotions and not adding. .

And there are no additional questions at this time. .

With no additional questions, we would like to thank everyone again for joining us on the call today, and this will conclude our call. Have a great day. .

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