Ladies and gentlemen, thank you for standing by, and welcome to the third quarter earnings release conference call. [Operator Instructions] Also as a reminder, today's teleconference is being recorded. .

Dennis Nelson, President and CEO; Karen Rhoads, Senior Vice President of Finance and CFO; Kelli Molczyk, 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 29, 2016, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following safe harbor statement. .

Safe harbor statements 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 the 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 call should not be relied upon as the information may be inaccurate. .

And at this time, I'll turn the call over to your host, Ms. Karen Rhoads. Please go ahead. .

Thank you. Good morning, everyone, and thank you for joining the call this morning. Our November 18, 2016, press release reported that net income for the 13-week third quarter that ended October 29, 2016, was $23.4 million, or $0.48 per share on a diluted basis.

And that is compared to net income of $35.9 million or $0.74 per share on a diluted basis for the prior year 13-week quarter that ended October 31, 2015. .

Year-to-date, our net income for the 39-week period ended October 29, 2016, was $62 million, or $1.28 per share on a diluted basis. And that is compared to net income of $92.9 million or $1.93 per share on a diluted basis for the prior year 39-week period that ended October 31, 2015. .

Net sales for the 13-week third quarter decreased 14.6% to $239.2 million compared to net sales of $280.2 million for the prior year 13-week third quarter. Comparable-store sales for the quarter were down 15.3% in comparison to the same 13-week period in the prior year. And online sales decreased 8.5% to $23.7 million. .

Year-to-date net sales decreased 11.8% to $694.9 million for the 39-week fiscal period ended October 29, 2016, compared to net sales of $787.6 million for the prior year 39-week period ended October 31, 2015. Comparable-store sales for the year-to-date period were down 12.5% in comparison to the same 39-week period in the prior year.

And online sales decreased 3.7% to $67.6 million. .

As noted in this morning's press release, net sales for the 13-week and 39-week fiscal periods ended October 29, 2016, are reported net of the impact of both the reward redemption and accrual for estimated future rewards related to the company's new Guest Loyalty program, which launched during the fiscal quarter ended April 30, 2016.

Absent the impact of the new loyalty program, total net sales for the third quarter were down 13.2%, and comparable-store sales were down 13.9%. For the year-to-date period, total net sales were down 10.4%, and comparable-store sales were down 11.1%. .

Gross margin for the quarter was 40.5%, down approximately 140 basis points from 41.9% for the third quarter last year.

The decrease was driven primarily by deleveraged occupancy, buying and distribution expenses, resulting from the comparable-store sales decline, which had about a 270 basis point impact, and was partially offset by 130 basis point improvement in merchandise margins.

Factoring out the impact of the new loyalty program, merchandise margins for the quarter would have been up approximately 30 basis points. .

For the year-to-date period, gross margin was 39.1%, down approximately 220 basis points from 41.3% for the same period last year, with the decrease being driven by deleveraged occupancy, buying and distribution expenses, resulting from the comparable-store sales decline. Merchandise margins for the year-to-date period were essentially flat.

Without the impact of the new loyalty program, year-to-date merchandise margins would have been down approximately 40 basis points. .

Selling expense for the quarter was 21.2% of net sales compared to 18.7% of net sales for the third quarter of fiscal 2015, with increases as a percentage of net sales in store payroll, marketing, health insurance and certain other selling expenses, partially offset by a reduction in expense related to the incentive bonus accrual. .

For the year-to-date period, selling expense was 20.8% of net sales compared to 18.7% of net sales for the same period in fiscal 2015, with increases as a percentage of net sales in store payroll, marketing, health insurance and certain other selling expenses, partially offset by a reduction in expense related to the incentive bonus accrual. .

General and administrative expenses for the quarter were 3.9% of net sales compared to 3.1% of net sales for the third quarter of fiscal 2015, with increases as a percentage of net sales in equity compensation and several other general and administrative expense categories, partially offset by a reduction in expense related, again, to the incentive bonus accrual.

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For the year-to-date period, general and administrative expenses were 4.3% of net sales compared to 4.0% of net sales for the same period in fiscal 2015, with increases as a percentage of net sales across several general and administrative expense categories, partially offset by a reduction in expense related to the incentive bonus accrual. .

Our operating margin for the quarter was 15.4% compared to 20.1% for the third quarter of fiscal 2015. For the year-to-date period, our operating margin was 14.0% compared to 18.6% for the same period last year. .

Other income for the quarter was $497,000 compared to $951,000 for the third quarter of fiscal 2015. And other income for the year-to-date period was $1.5 million compared to $2.0 million last year. .

Income tax expense as a percentage of pretax net income was 37.3% for the third quarter of both fiscal 2016 and fiscal 2015, bringing third quarter net income to $23.4 million for fiscal 2016 versus $35.9 million for fiscal 2015.

Year-to-date, income tax expense was also 37.3% for both fiscal 2016 and fiscal 2015, bringing year-to-date net income to $62.0 million for fiscal 2016 versus $92.9 million for fiscal 2015. .

inventory of $148.2 million, which was down approximately 16% from inventory of $175.9 million at the end of the third quarter of fiscal 2015; and total cash and investments of $232.8 million, which compares to $231.5 million at the end of fiscal 2015 and compares to $192 million at the same time a year ago. .

As of the end of the quarter, inventory on a comparable store basis was down approximately 18% and total markdown inventory was up compared to the same time a year ago. We ended the quarter with $175 million in fixed assets, net of accumulative depreciation.

Our capital expenditures for the quarter were $10 million and depreciation expense was $7.9 million. For the year-to-date period, capital expenditures were $27 million and depreciation expense was $24.1 million. .

$25.8 million for new store construction, store remodels and store technology upgrades; and $1.2 million for capital spending at the corporate headquarters and distribution center.

We still expect our fiscal 2016 capital expenditures to be in the range of $28 million to $32 million, which includes primarily new store and store remodeling projects and certain IT investments. .

For the quarter, UPTs increased approximately 1.5%, the average unit retail decreased approximately 5.5% and the average transaction value decreased 4.0%. For the year-to-date period, UPTs increased approximately 1.0%, the average unit retail decreased approximately 3.0% and the average transaction value decreased 2.5%. .

Buckle ended the quarter with 470 retail stores in 44 states compared to 468 stores in 44 states at the end of the third quarter of fiscal 2015. Additionally, our total square footage was 2.403 million square feet as of the end of the quarter compared to 2.372 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 Vice President of Finance, Treasurer and Corporate Controller. .

Good morning, and thanks for joining 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 down approximately 9%. Our average denim price points decreased from $92.70 in the third quarter of fiscal 2015 to $89.15 in the third quarter of fiscal 2016.

For the quarter, our men's business was approximately 46% of net sales compared to 43% last year, and our average men's price points decreased approximately 3.5% from $57 to $55. .

Women's merchandise sales for the quarter were down approximately 18.5%. Our average denim price points decreased from $95.50 in the third quarter of fiscal 2015 to $87.20 in the third quarter of fiscal 2016.

For the quarter, our women's business was approximately 54% of net sales compared to 57% last year, and our average women's price points decreased approximately 9% from $52 to $47.35. .

For the quarter, combined accessories sales were down approximately 16.5%, and combined footwear sales were down approximately 19.5%. These 2 categories accounted for approximately 8.5% and 6%, respectively, of third quarter net sales, which compares to 8.5% and 6.5% for each in the third quarter of fiscal 2015.

Our average accessory price points were down approximately 1.5%, and average footwear price points were down approximately 17% for the quarter. .

For the quarter, denim accounted for approximately 45% of sales, and tops accounted for approximately 32%, which compares to 45.5% and 31.5% for each in the third quarter of last year. .

Our private label business was up slightly as a percentage of sales and represent approximately 35% of sales for the quarter. .

During the quarter, we opened 1 new store, completed 5 full remodels and closed 1 store. As of the end of the quarter, 392 of our 470 stores were in our newest format. For the full year fiscal 2016, we still anticipate opening a total of 5 new stores, which includes 1 store that opened last week.

We also still anticipate completing 19 full remodels, which includes 2 that moved back into their remodeled space in November. .

And with that, we'll welcome your questions. .

[Operator Instructions] And our first question will come from Tiffany Kanaga with Deutsche Bank. .

Would you talk about what actions you took to achieve the inventory reduction for the quarter, and how you feel that level's heading into the holiday?.

Thank you, Tiffany. Our inventory is down, as we mentioned, but a year ago at the end of the quarter, it was up 19%. So dollars are fairly comparable to 2 years ago. And I think, just our team -- of merchandisers have done a very good job of planning and building product appropriate for this season.

We reduced sweaters in the gal's category especially and some in the men's. Outerwear was brought down.

In the footwear, in the gal's side, last year, we had a great selection of tall leather boots, and the cowboy boot was still working at that time, so we had boots in the $300, give or take, price range, where this year that becomes a very small part of our business, and we're selling more of the short boots and other footwear that are $70 or under.

So those are a few of the major ones. We've also, especially in the gal's side, made a wider range of styles and brands and details. We're selling fewer of the more-detailed, higher-priced denim, and we've added several brands and styles in the $70 range.

And so we have a lot of different lifestyles, looks, a lot of cleaner looks, some colored denim, but the price points are down from there. So we've been very happy how the team has handled a difficult retail environment. .

And if I could ask one more.

Would you talk about the growth in general and administrative dollars in the quarter? And looking ahead, do you still see opportunity to drive total SG&A reductions beyond sales deleverage and in what areas?.

Well, continue to review that, and we feel like we've always been very good at not having excessive costs in our system.

We continue to review that as we go forward, as far as store performance out there and a variety of things in the office where we've improved efficiencies in some of our shipments of freight and kind of a little bit throughout the company.

But you guys have anything else to add on that?.

Looking -- I mean, looking at the third quarter, the bulk of the increase in the G&A, to your question, was in equity compensation expense, and that's really a function of how many shares granted for this year that we expect to vest. And so there's a little bit of a change there, and that's the biggest part of the increase year-over-year. .

The next question will come from Simeon Siegel with Nomura. .

This is Julie Kim on for Simeon. Can you just give more color on the current sales trends and what drove the meaningful decline in online sales, in particular, and what we should expect moving forward? I believe last quarter, you mentioned moving to a different online platform.

So are there any updates there or any lasting impacts from that still going on?.

Regards the online sales, the last 2 years in the third quarter, we had some very strong growth. And I think with our overall sales being down and our price points being down substantially, that that's had the biggest effect on our Internet store.

And I think in the e-com, there's always a few things we can do, and we continue to make some upgrades there. But I think that's kind of what's caused that. And I'm sorry, I didn't write down the first part of your question. .

Just if you could give some more color on current sales trends you're seeing?.

No, really no forecast going forward. I think the third quarter, as we've mentioned, was some slowing traffic in the mall, and the price points being down, and just being smart about inventory with what's going on, I think that's had the effect of -- on our sales. .

[Operator Instructions] Next in queue is Jessica Schmidt with KeyBanc Capital Markets. .

I guess, can you just talk about any kind of insight into how the new product is resonating with the customer.

Are you starting to see any of your last customers come back to the store? And just given the continued comp declines, how should we be thinking about your store footprint? Do you think we could start to see any store closures?.

Well, as far as store closures go, we review that yearly, and sometimes we have a couple and sometimes we don't. But that will continue, and I would expect at least a couple at the end of the year. But yes, our guests, we are getting some positive feedback from our guests and our stores on our product selection and the newness.

We continue to flow the new product and getting some nice sell-throughs on the majority of the new deliveries. .

And just as a quick follow-up, how are you thinking about your promotional positioning into 4Q? It sounds like you have higher markdown inventory to clear through.

But do you think that you'll do any kind of special buys for the holiday season, maybe similar to what you did in July?.

Well, it's too late in the season to buy -- have special buys for this particular one. I would say, our clearance cadence is pretty much consistent with what we've done in the past. We don't put this whole store on sale. It's just the items that need a little juice. .

[Operator Instructions] Next is Ujjval Dave with Ujjval Investments. .

This is Ajul [ph]. Last time I got on the call was in November 2015 when company's comps were falling at 6% to 8% monthly rate. At that time, I didn't hear any promising strategy on how you're going to turn around the ship. I'm making another attempt to find out more. During the last 12 months, the monthly comps for product as a return pays around 15%.

For you guys this isn't a new phenomenon and company -- the comps had been falling since December 2013, which is nearly 3 years. I understand that retail industry, especially apparel industry is going through some tough periods. But here, the problem seems to be specific to Buckle.

As your company builds, the comp drop has gone into low single digits or it has become positive. Now to your credit, Buckle has quite appealing and high-quality merchandise, and even after comps drop, you guys are not compromising on the quality, which is healthy. However, if customers won't come to the store, there won't be impulsive purchase.

As far as online is concerned you guys have minimum $7 shipping charges no matter what size the order is. But that is discouraging, and as we could see, the online sales has been dropping as well now.

So my question is, what exactly is your solid plan to inspire more in-store visits so that comp sales could start turning positive going forward?.

Okay. Well, we're going to continue to keep our focus on being a specialty store. And as we've mentioned, the sales have dropped with the price points coming down. And we continue to evolve every year. Sometimes, we, like the last several years, we were able to maximize the trend of high-price-point denim with strong details, great finishes.

And as that guest has evolved to different styling in the denim and the selection, we've evolved as well, as -- so we don't have the benefit of the $150 jean plus with more of them being under $100. As we mentioned, we shop and try to put a great selection together for our guest on what they want and where we see the new trends going.

And like the last year or 2, the boots have been very strong in the higher price points, that wasn't going to happen again. So we have different opportunities in the marketplace, depending on what the trends are going. And right now, the price points have come down, and we've offered a different variety, new looks, new brands.

And as our guests evolve and see how we've changed and all the different looks and lifestyles they can get at our store, then I think they're going to be very happy. And part of our message is to get that message out, how we continue to evolve. We continue to have a very strong sales team and store managers, which is very important in our business.

And also, we just started a Buckle app where our guests, once they sign in for that, can see they daily new product that's arriving in our stores that they visit to create that interest and keep them in tune to what we have going on. And we're continuing to work on other ideas to increase the excitement to get to the stores. .

That's something good to know. If I can squeeze in another question. Despite significant ownership, including the founder and the management, I'm sure you, along with investors, you all are hurting when share prices dropped so much in last 2 years. I don't see enough urgency to fix the problem.

And I appreciate the fact that you guys don't engage into very -- engage in profitless growth by heavy discounting storewide.

But if you look at last year, last year I asked that, is there any plans so that customers could order items online and pick up in the store? I've been told that in spring 2016, you guys might consider implementing that, but I don't think that has happened.

So could you please provide some colors on what was the rationale behind the decision of not implementing it at all, or why not creating an environment so that customer can come to the store to pick item and make impulsive purchase of other stuff as well?.

Well, we -- also, as part of our app, people can reserve the product they see and come into the store to pick it up there. And so we've worked on that, and we're continuing to work on some software and our new POS that we will be working on over the next year, 1.5 years, to be able to do more things that would be friendly for the guests that way. .

But am I hearing that as a customer I will be able to make the payment or reserve it and pick it up from the store without any additional cost?.

Yes, no additional cost by reserving the product on the app and coming into the store. .

[Operator Instructions] Next is Kyle Kavanaugh with Palisade Capital. .

I just wanted to follow up on that question.

Do you guys feel that the price -- the declining price point is kind of like extremely difficult to overcome? Or do you feel that if the merchandising were different, you could have better comps at this point? Or -- and basically, do you feel like your merchandising efforts and initiatives have been as good as they can to operate in the current environment?.

Look, Kyle, I supposed there's always room for improvement at some point, but I think our merchandisers are doing a very nice job on the selection and the quality and the price points of what we're offering.

And we're always looking to, I -- mean, we're always looking for new vendors, we're looking to develop new product and, but it's got to make sense for quality and price. And sometimes there's just a few more opportunities with the high-fashion than there are at other times.

So I'm still very confident that we have -- our merchandise teams are doing a great job and understand our customer and will put out a nice presentation. .

So in the face of declining mall traffic and heavy declines in the average price point, are there some other things that you can do to try to overcome that, at least get that comp comparison going in the right direction from this point, 15% declines in comps is a pretty large number?.

I agree. Well, we're hopeful that the economy is such that it will improve that it will be -- I think, which is part of the problem of mall traffic.

But also, we have -- we're working on developing more stylists in our store to be able to put outfits and deliver packages to our guests that are too busy to get to the mall as well as we continue to work with our stores on setting up Get Fitteds or appointments in the stores where they can come in and have kind of a special arrangement with the guests for putting outfits together and their own dressing room and such to try on and make it a special experience.

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[Operator Instructions] We have a follow up from Ujjval Dave. .

This might be my last question. Proper finance theory suggests that if management and board believes that if the share is very cheap, it should be repurchased using a free cash flow. In the case of Buckle, if we exclude cash and investment, market cap is -- have barely $800 million. And if I look at last 12 months, net income, nearly $130 million.

The share is trading at 6x to 7x earning multiple, which seems quite cheap. Now that should give enough reason to vote to use free cash flow to buy back the shares. And I haven't seen that. You guys mostly use the money towards giving special dividend and regular dividend but buyback is insignificant.

And since share has dropped nearly 60%, if we don't cancel a special dividend payment in last 12 to 2 [ph] years.

So Dennis, since you are on the board, could you please give us some color on how the board is thinking on when to consider buyback -- heavy buyback versus special dividend payment?.

Well, the only comment we have right now is we try to be careful on that because we don't have a large float, and we want to make sure that we don't make it too slim a float for our stock. And so that's part of the reason we are cautious on the buybacks. .

[Operator Instructions] And there are no additional questions at this time, please continue. .

Yes, if there are no additional questions at this time, we'd like to conclude the call, and we want to again thank everyone for joining the call. We appreciate your time this morning, and have a great weekend. .

Thank you very much. And ladies and gentlemen, this conference will be available for replay after 11 a.m. Central Time today, running through December 2 at midnight. You may access the AT&T Executive playback service at any time by dialing (800) 475-6701 and entering the access code of 405754. International participants may dial (320) 365-3844.

That does conclude your conference call for today. We do thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect..