Ladies and gentlemen, thank you for standing by, and welcome to The Buckle third quarter earnings release.

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..

As they review the operating results for the third quarter, which ended October 31, they would like to reiterate their policy for not giving future sales or earnings guidance and have 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 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 express written consent. Any unauthorized reproductions or recordings of the calls should not be relied upon as the information may be inaccurate. .

And at this time, I would like to turn the call over to our host, Karen Rhoads. Please go ahead. .

Thank you. Good morning, everyone. We appreciate you joining the call this morning.

Our November 19, 2015 press release reported that our net income for the 13-week third quarter that ended October 31, 2015 was $35.9 million or $0.74 per share on a diluted basis, and that is compared to net income of $40.6 million or $0.84 per share on a diluted basis for the prior year 13-week third quarter that ended November 1, 2014.

Year-to-date, our net income for the 39-week period ended October 31, 2015 was $92.9 million or $1.93 per share on a diluted basis compared to net income of $102.4 million or $2.13 per share on a diluted basis for the prior year 39-week period that ended November 1, 2014. .

Net sales for the 13-week third quarter decreased 4.1% to $280.2 million compared to net sales of $292.2 million for the prior year 13-week third quarter. Our comparable store sales for the quarter were down 5.2% in comparison to the same 13-week period in the prior year, and our online sales increased 13.6% to $25.9 million.

Net sales for the 39-week year-to-date period decreased 1.5% to $787.6 million compared to net sales of $799.6 million for the same period in the prior year. Comparable store sales for the year-to-date period were down 3.1% in comparison to the same 39-week period in the prior year, and our online sales increased 14.4% to $70.2 million. .

Gross margin for the quarter was 41.9%, down approximately 180 basis points from 43.7% for the third quarter last year.

The decrease was driven primarily by a 100 basis point reduction in merchandise margin and by deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline, which had about an 80 basis point impact.

For the year-to-date period, gross margin was 41.3%, down approximately 120 basis points from 42.5% for the same period last year.

The decrease was driven primarily by a 30 basis point reduction in merchandise margins and by deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline, which had about a 90 basis point impact. .

Selling expense was 18.7% of net sales for the third quarter of fiscal 2015 compared to 18.1% of net sales for the third quarter of fiscal 2014. Increases in store payroll expense and online fulfillment and marketing 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 18.7% of net sales compared to 18.4% for the same period in fiscal 2014. Increases in store payroll expense and online fulfillment and marketing 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 3.1% of net sales compared to 3.5% of net sales for the third quarter of fiscal 2014, with reductions in equity compensation expense and expense related to the incentive bonus accrual being partially offset by increases as a percentage of net sales across certain other expense categories as a result of the comparable store sales decline.

For the year-to-date period, general and administrative expenses were 4% of net sales compared to 3.8% of net sales for the same period in fiscal 2014, with increases as a percentage of net sales across several expense categories as a result of the comparable store sales decline being partially offset by a reduction in equity compensation expense. .

Our operating margin for the quarter was 20.1% compared to 22.1% for the third quarter of fiscal 2014. For the year-to-date period, our operating margin was 18.6% compared to 20.3% for the same period last year. Other income for the quarter was $951,000 compared to $226,000 for the third quarter of fiscal 2014.

And other income for the year-to-date period was $2.0 million compared to $831,000 last year. .

Income tax expense as a percentage of pretax net income was 37.3% for the third quarter of both fiscal 2015 and fiscal 2014, bringing our third quarter net income to $35.9 million for fiscal 2015 versus $40.6 million for fiscal 2014.

Year-to-date, income tax expense was also 37.3% for both fiscal 2015 and fiscal 2014, bringing year-to-date net income to $92.9 million for fiscal 2015 versus $102.4 million for fiscal 2014. .

inventory of $175.9 million, which was up approximately 19.5% from inventory of $147.2 million at the end of the third quarter of fiscal 2014; and total cash and investments of $192 million, which compares to $203.3 million at the end of fiscal 2014 and $252.4 million at the same time a year ago.

As of the end of the quarter, inventory on a comparable store basis was up approximately 14% compared to the same time a year ago, and total markdown inventory was up compared to the same time a year ago.

Please note that this comparable store inventory increase for this year is in comparison to comparable store inventory levels that were down 1.5% at the same time a year ago. Additionally, the overall increase in inventory is attributable to several factors, including an increase in in-transit and DC inventory. .

$20.3 million for new store construction, store remodels and store technology upgrades; and $10.6 million for capital spending at the corporate headquarters and distribution center.

We now expect our fiscal 2015 capital expenditures to be in the range of $34 million to $36 million, which includes primarily new store and store remodeling projects, IT investments and the completion of a new office building in Kearney, Nebraska. .

During the latter part of the quarter, we also spent approximately $684,000 to repurchase just over 20,000 shares of Buckle common stock at an average cost of $34.02. This leaves 523,803 shares remaining on our current authorization. .

For the quarter, UPTs increased approximately 1.5%. The average transaction value increased approximately 0.5%, and the average unit retail decreased approximately 1%. For the year-to-date period, UPTs decreased slightly. The average transaction value increased approximately 2.5%, and the average unit retail increased approximately 2.5%. .

Buckle ended the quarter with 468 retail stores in 44 states, and that is compared to 461 stores in 44 states at the end of the third quarter of fiscal 2014. Additionally, our total square footage was 2.372 million square feet as of the end of the quarter compared to 2.332 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 just slightly, with strong categories including casual bottoms, knit shirts, shorts and accessories.

Our average denim price points increased from $91.95 in the third quarter of fiscal 2014 to $92.70 in the third quarter of fiscal 2015. For the quarter, our men's business was approximately 43% of net sales compared to 41.5% last year, and our average men's price points decreased approximately 1% from $57.60 to $57..

Women's merchandise sales for the quarter were down approximately 7%, with strong categories including casual bottoms, woven tops and dresses. Our average denim price points decreased from $98.80 in the third quarter fiscal 2014 to $95.50 in the third quarter of fiscal 2015.

For the quarter, our women's business was approximately 57% of sales for the month -- for the quarter compared to 58.5% last year, and average women's price points increased slightly from $51.80 to $52. .

For the quarter, both combined accessories sales and combined footwear sales were up slightly. These 2 categories accounted for approximately 8.5% and 6.5%, respectively, of third quarter net sales, which compares to 8.5% and 6% for each in the third quarter of fiscal 2014.

Our average accessory price points were up approximately 5.5%, and average footwear price points were down approximately 2.5%. For the quarter, denim accounted for approximately 45.5% of sales and tops accounted for approximately 31.5%, which compares to 46.5% and 31% for each in the third quarter of last year. .

Our private label business was up slightly as a percentage of sales for the quarter and represent approximately 35% of sales. During the quarter, we opened 4 new stores and completed 2 full remodels. As of the end of the quarter, 383 of our 468 stores were on our newest format. .

For the full year fiscal 2015, we still anticipate opening 9 new stores in total, which includes our last new store for the year, which opened earlier this month, and we also still anticipate completing 14 full remodels for the year, including 1 left to open in November.

Preliminary plans for fiscal 2016 include approximately 4 new stores and 19 full remodels. .

And with that, we welcome your questions. .

[Operator Instructions] And first, we'll go to the line of Simeon Siegel with Nomura Securities. .

So I don't think we've seen this magnitude of gross margin declines before.

How do you view your inventory position? I guess what do you expect from merch margins going forward and maybe just why you think those merch margins are down so much? And then any color you can add on capital allocation, dividend strategies, if you could just remind us what the cash balance you like to keep on the balance sheet. .

Simeon, Dennis. We took some targeted markdowns kind of based on the traffic of the third quarter and trying to be responsive and do our best to maximize our inventory. So we feel reasonably good about where we're at going into fourth quarter and would expect inventories to continue to improve as we close into the fourth quarter.

And on the capital part, we'll continue to review our investment strategy as far as volume stock, and we don't have a set dollar amount that we want to maintain on the books. Traditionally, in the past, it would be at least $100 million, so that would be kind of a general idea. .

And next, we'll go to the line of Paul Alexander with BB&T Capital Markets. .

Could you just talk a little bit about denim? Given what you experienced in Q3, is there any read into Q4? Or is visibility for denim in Q4 impaired by what you might have seen from weather or traffic in Q3? Is the denim assortment changing much from season to season? Is there anything that you identified in last year's Q4 that you wanted to capitalize on this year? Just anything on denim will be great.

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Well, I think as we mentioned, probably in the third quarter, we have a better variety of brands and a wider selection of product and price points. And so we feel good about our denim selection as we go into fourth quarter and look forward to that being some good business for us. .

Dennis, could you just comment a little bit more on the demand? For a few quarters in a row now, you guys have said that you really like the assortment and been noting that it is broader. And we've noticed a couple of things in stores, classics like embellished product versus cleaner stuff.

Clearly, you have broadened that assortment, but the demand hasn't really picked up.

So can you just comment on maybe the demand side of it?.

I think that's probably due to the traffic of the season. Some of the cleaner styles have done well, but there's still certain markets that do very well with more of the bling styles, and so we're trying to fine-tooth the assortment as well as the bottom openings and the fits. And we feel like we've got a good situation there. .

And next, we'll go to the line of Adrienne Yih with Wolfe Research. .

A question on the earlier in-transit and DC receipts. I was just wondering what the rationale was for moving those earlier? And is that a shift in timing of flows? Or should we expect that to occur for the next 3 quarters until we anniversary it next third quarter? I think this happened at the end of second quarter this year.

And then secondarily, any notable outliers in trends in the Texas market, where you have above-average exposure, or other energy-related, commodity-related markets? If you could help us there, that will be great. .

Okay. Thank you. On the heavy dependent oil areas, that has had an effect to business, and so we're managing through that best.

And on the flow of the product, Karen or Tom, do you want to take that?.

Sure. Kind of as we mentioned, a year ago, at the end of the third quarter, inventory was down 1.5% from the same time in 2013. So I think and we feel like that we've been playing catch-up on inventory a little bit. So we probably should be, by the end of the year, anniversarying those numbers.

Don't you feel like, Tom, that those should be a little more comparable then?.

I would think so. .

So we should see inventory roughly in line with -- that up 19% should come down to kind of flattish to low single digits, in that range?.

We're not forecasting where it will be, but we'll see an improvement on that and feel comfortable going into fourth quarter where we're at. .

Okay. And the plan to -- during fourth quarter, it would sound like -- Karen, you had said the markdowns were heavier coming into the quarter. So we should expect to see you continue to be more promotional, similar to the third quarter.

And would that then imply similar margin impacts? And I know you're not guiding, but just -- Tom, I'm just trying to get a feel for how quickly you want to bring that inventory level down. A lot of it was denim.

Shouldn't it be longer-lived, that maybe it could kind of move into the spring season?.

Yes. I mean, naturally, what happens over the next 6, 8 weeks will have an impact on that. So based on where we're at and moving into it, we think that the markdowns will not necessarily increase over how they increased in third. We see it more as a maybe more traditional.

But here, again, we'll just have to respond to the market as we get into the season. .

Okay. And on that note -- it's my last question. We've heard from department stores and many, many other retailers about kind of this -- whether it's weather-related or not, but this kind of lull in kind of the early November period.

Any color -- can you help us out with any trends that are currently happening?.

Bob, do you want to address anything in the men's?.

Well, to Dennis's point on the denim, that we've got quite a bit of stretch, and there's new fabrication there and there's new fabrications in the knits and colors, so I think both of those, that we're feeling pretty good about going into holiday.

And the casual business, as Tom mentioned, has grown as well, which is kind of a nice supplement to the denim. .

And next, we'll go to the line of Ubal Dabe [ph] with Ubal Investments [ph]. .

I have a couple of questions, if I may ask. Otherwise, I can go back to the queue for further questions. My first question is -- I have been following Buckle's business for a few years and admire management's discipline for not offering discounts, coupons when majority of your competitors have been engaged in margin-hurting promotions.

However, I'm very concerned about Buckle's trajectory of monthly comps since last few months, when Buckle seems to be the standout poor performer. I was trying to see when Buckle had a healthy growth rate, and I had to trace back all the way to April 2013.

If I look at 2013, entire year, on average, it's down almost 53 basis points, the comps were down. In 2014, it was down almost 1% for the year. And if I look at 2014 annual report, Dennis mentioned another strong year. He categorized -- probably he was looking at it from the earnings point of view.

But I would think that 2014 comps were so down, so you have a lower base point to compare for 2015. However, the drop continued in 2015, with last 10 months averaging 3.1%, if I look at today's number. Recent months saw 7% to 8% comps are down for the last 3, 4 months, which are very alarming.

Now if I look at your management team, you guys are having 25 to 40 years retail experience individually, most of them with Buckle. So you've also seen [indiscernible] the retail industry and I understand there is a lot of structures happening right now, businesses going on online.

So my question is for Dennis and probably Karen and Patricia is what is going on with the retail markets and Buckle, in particular? And if brick-and-mortar stores are going through secular decline, what is Buckle's strategy to resume comps growth going forward?.

Okay, thank you. Well, we are -- feel that we are really a specialty store and have great service in the stores with the product. And we are continuing to review and enhance our managers and teammates to work on additional ways with Guest Connect and to line up business with them as far as appointments.

And if there -- a lot of people are having -- just very busy. So we're looking at ways to help them with their outfits and selection and work with them on making better shopping opportunities for them and easier to buy as well as just to continue the level of increase in our store managers, which have a big impact on our business.

Over the years, we have taken very good opportunities and maximized our business, and sometimes, there's just more going on in the fashion world than others that make it a little challenging to comp up.

And we want to continue to keep a very strong regular-price business and the strength of our stores, so we won't be promotional as far as storewide sales to generate business and focusing on the bottom line and generating cash to continue to be a very strong retailer.

So we're looking for ways to grow our business and such, and I think we've got some good plans, but we're not just going to discount our store to generate extra sales. .

Okay, that's good. Now it seems consumers are fast moving towards e-commerce for their clothing needs. Even at Buckle, if you look at today's numbers, the online sales is up 14%, then the brick-and-mortar stores sale is essentially down.

But in the world of Amazon Prime shipping, when they order, free shipping, 2-day shipping every -- 1-hour shipping nowadays. You guys are still charging $7 per order irrespective of the size of the order, and that is quite discouraging for a lot of consumers. So I haven't seen you guys offering free shipping or even free shipping to the store.

Are you guys considering any changes to your e-commerce strategy which will help revenue growth without hurting margins much?.

We continue to review that. The one thing we do is we do special orders from the store that the guest can pick up free in-store, and we're looking to, probably in the spring, add online orders pickup stores free, which we have freight going daily to our stores.

And so a lot of our guests do special orders into the stores, so they save that shipping fee that way. But we continue to review what's going on, and that's the key thing of our product. Being exclusive and private label, that kind of gives us an edge, and we are going to keep working on it. .

And if I look at -- if I want to place some order at Buckle over the phone or online, right now, you guys are expecting customers to go to the store, place the order, and you guys get it in the store, and I will come second time. So you guys are planning to change that.

Is that I'm understanding?.

No, what I said is we have special orders that they can pick up in the store now. There's no charge. That's going on now. We are looking at online pickup probably in the spring of -- in the stores, which there would be no charge. But we have not committed to changing our policy at this point. .

Okay. And one more question if I can. I think somebody already addressed it at the outset, but for -- this question might be for Dennis or Karen. For 5 -- past 5, 6 years, you have been giving special dividends, returning almost 100% of free cash to the investors.

When shares are expensive, that makes a lot of sense, but your shares are down almost 41% year-to-date.

Wouldn't be buying back shares more prudent now in the sense of first-mover [ph] decision? But if we can get some color on what is your rationale in last 5, 6 years, what is your thought process going forward on the capital management of -- returning the additional cash, it would be a great help. .

Well, we're consistent with reviewing to where we think our opportunities are and growing the business and reviewing where the price of the stock is, and we have some people that -- investors that love the dividend and some that encourage the buybacks. We just continue to evaluate with our board on what makes sense for us at that particular time. .

Okay. But it looks like so far, this year, in the last few months, you guys don't have an aggressive buyback because the number of outstanding shares are still almost same, a little higher. So I understand that -- so far, you guys have not any -- you guys don’t have any buyback plans. .

Well, we announced that we bought 20,000 shares last month, as they said in the script, and that we still have the ability -- the board approved over 500,000 shares we can buy if we decide to. So as I mentioned, that's something we continue to review. .

And next, we'll go to the line of Andrew Hollingworth with Holland Advisors. .

The previous gentleman asked some of the questions that I had, but just following on a little bit on some of those. Obviously, we have got a reasonable sort of strength of decline, and we're all trying to understand why, and I'm sure you are, to a certain degree, as well.

I think before, you've talked about the fact that there were sort of 2 drivers being mall traffic and being the sort of fashion away from denim, if you like, and maybe we can throw a third in today, which is the whole sort of exposure to, perhaps, some of the oil areas as well.

But I'm assuming it's sort of mall traffic and fashion are #1 and #2 and then sort of the exposure to oil areas might be the third place one.

I suppose my question -- I mean, I think the previous question asking about the online strategy is right, and I think that there's a lot of innovation happening online, and it does feel like Buckle's is, perhaps, a little bit behind in terms of where some of the competitors might be on that.

But I suppose my sort of more direct question is, if you look to sort of the compounding effect of mall traffic and said, okay, what's it down this year? Is it down 5% or 7%? Or what was it down last year? Are we ending up on a situation where the sort of total mall traffic is 15% below what it was 3 years ago? And therefore, even though you are not a discounter, those around you are discounting more and more in the mall to try and attract the traffic of the small number of people that are passing by, in which case, your sort of comparative stores and locations are difficult.

Is that fair? Or how would you sort of respond to those comments?.

Well, I think those comments are pretty fair, that the mall traffic is down. And we've known for some time that, that has been a trend, and we continue to try to set our store up as a destination store and continue to do so. We also are not discounters, but we know we have a variety of customers and ages and such.

And so we -- besides having a variety of brands and styles and such, we've also merchandised our in-house brand, so we have a selection of prices. So we have denim in the $50 range, and we have denim in the over $150 range.

And we try to cater what's going on with the trends for particular stores, so we can merchandise the stores to what the majority of their guests wants. So we realize the challenges, but we feel very good about our talent and our teams, and they're continually working to overcome those.

And I think there's combinations of things for third quarter that made it very challenging, but we'll be ready to continue to do our best. .

But my sort of point I'm trying to get at is I think Buckle has been an excellent operating business for some years, but businesses can be unlucky. And maybe the sites in malls that you wanted 3, 4, 5, 7 years ago could get us right next door to a certain number of sort of key retailers.

Is that now not such a good site because that key retailer isn't such a key retailer in the Internet world and they're discounting more than you would like? And does that mean sort of the move to online should be more urgent? Because you have got a good brand. People do like what you sell.

But maybe it should be a more urgent move to online, a more urgent rationalization of some of the store base. .

Well, we're continually working on investing on our online business, and we're working on a new base system for that going forward and building some staff there. So we're trying to do it very smartly, so we can improve our business but also stay profitable and not just be giving things away online.

And our mall locations, we continue to improve our locations and update our stores. And we have, in most cases, A locations throughout our shopping centers and continue to see that as a strong focus to build off and tie in with our online business. .

[Operator Instructions] And we have no lines in queue, speakers. Please continue. .

All right. And with no further questions, we do want to thank everyone again for joining us on the call today. We appreciate your time, and this will conclude our call. .

And ladies and gentlemen, this conference will be available for replay, and that will be after 11:30 a.m. Central today. It will end on December 3, 2015, at midnight. You may access the replay system at any time by dialing 1 (800) 475-6701 and entering the access code of 373105. International participants, please dial area code (320) 365-3844.

That does, again, conclude our conference call for this morning. Thank you very much for your participation and for using the AT&T Executive TeleConference Service. You may now disconnect..