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

Members of Buckle's management on the call today are Dennis Nelson, President and CEO; Tom Heacock, Vice President of Finance, Treasurer and CFO; Kelli Molczyk, Vice President of Women's Merchandising; Bob Carlberg, Senior Vice President of Men's Merchandising; and Kyle Hanson, Vice President, General Counsel and Corporate Secretary.

As they review the operating results for the third quarter, which ended on October 28, 2017, 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 under the Securities and Exchange Commission.

The company does not undertake to publicly update or revise any forward-looking statements even if experience of -- 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 expressed written consent. Any unauthorized reproductions or recordings of the call should not be relied upon as the information may be inaccurate..

I would now like to turn the conference over to our host, Mr. Tom Heacock. Please go ahead. .

Good morning, and thanks for joining us this morning.

Our November 17, 2017, press release reported a net income for the 13-week third quarter ended October 28, 2017, was $19.9 million or $0.41 per share on diluted basis, which compares to net income of $23.4 million or $0.48 per share on diluted basis for the prior year 13-week third quarter, which ended on October 29, 2016.

Year-to-date, net income for the 39-week period ended October 28, 2017, was $47.7 million or $0.99 per share on a diluted basis, which compares to net income of $62 million or $1.28 per share on a diluted basis for the prior year 39-week period ended October 29, 2016..

Net sales for the 13-week third quarter decreased 6.2% to $224.3 million compared to net sales of $239.2 million for the prior year 13-week third quarter. Comparable store sales for the quarter were down 5.9% in comparison to the same 13-week period in the prior year, and our online sales decreased 1.2% to $23.4 million.

Year-to-date net sales decreased 9% to $632.2 million for the 39-week fiscal period ended October 28, 2017, compared to net sales of $694.9 million for the prior year 39-week fiscal period ended October 29, 2016. .

Comparable store sales for the year-to-date period were down 8.8% in comparison to the same 39-week period in the prior year, and online sales decreased 4.3% to $64.7 million.

For both the quarter and year-to-date periods, UPTs increased approximately 2.5%; the average unit retail decreased approximately 6.5%; and the average transaction value decreased approximately 4%..

Gross margin for the quarter was 40.5%, even with the third quarter of last year.

Despite deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline, gross margin was flat year-over-year due a 55 basis point improvement in merchandise margins and the 60 basis point benefit as a result of the fiscal 2016 sunset of our old Primo Card loyalty program, under which rewards were recorded as a cost of goods sold at the time of redemption.

For the year-to-date period, gross margin was 39% compared to 39.1% for the same period last year, with the slight year-to-date decrease being due to deleveraged occupancy, buying and distribution expenses resulting from the comparable store sales decline and being offset by a 70 basis point improvement in merchandise margins and 120 basis point benefit related to the Primo Card sunset..

Selling expense for the quarter was 22.6% of net sales compared to 21.2% of net sales for the third quarter of fiscal 2016. For the year-to-date period, selling expense was 22.8% of sales compared to 20.8% of sales for the same period in the prior year.

For both the third quarter and the year-to-date period, the increase in selling expense as a percentage of net sales was the result of increases in store payroll, online marketing and fulfillment and certain other selling expenses..

General and administrative expenses for the quarter were 4.1% of net sales compared to 3.9% of net sales for the third quarter of fiscal 2016. For the year-to-date period, general and administrative expenses were 4.6% of net sales compared to 4.3% in the prior year.

For both the quarter and year-to-date period, the G&A increase is due to increased professional and consulting fees..

Our operating margin for the quarter was 13.8% compared to 15.4% for the third quarter of fiscal 2016. And for the year-to-date period, our operating margin was 11.6% compared to 14% for the same period last year.

Other income for the quarter was $0.8 million compared to $0.5 million for the third quarter of fiscal 2016, and other income for the year-to-date period was $2.6 million compared to $1.5 million in the prior year..

Income tax expense as a percentage of pretax net income was 37.3% for the third quarter of both fiscal 2017 and fiscal 2016, bringing third quarter net income to $19.9 million for fiscal 2017 compared to $23.4 million for fiscal 2016.

Year-to-date, income tax expense was also 37.3% for both fiscal 2017 and fiscal 2016, bringing year-to-date net income to $47.7 million for fiscal 2017 compared to $62 million for fiscal 2016. .

inventory of $128.8 million, which was down approximately 13% from inventory of $148.2 million at the end of the third quarter of fiscal 2016; and total cash and investments of $275.8 million, which compares to $264.6 million at the end of fiscal 2016 and $232.8 million at the same time a year ago.

As of the end of the quarter, inventory in a comparable store basis was down approximately 13%, and total markdown inventory was down compared to the same time a year ago..

We ended the quarter with $156.1 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $3.8 million, and depreciation expense was $7.3 million. For the year-to-date period, capital expenditures were $11 million, and depreciation expense was $23.1 million..

$10 million for new store constructions, store remodels and store technology upgrades; and $1 million for capital spending at the corporate headquarters and distribution center. During the quarter, we did not open any new stores or complete any full store remodel but did close 2 stores.

We also opened our last new store of the year in Stockton, California on November 2, completing our planned new store and store remodeling projects for the year and bringing our year-to-date count to 2 new stores, 7 full remodels and 7 store closures.

As a result, we now expect our fiscal 2017 capital expenditures to be in the range of $13 million to $17 million, which includes primarily new store and store remodeling projects and certain IT investments..

Buckle ended the quarter with 461 retail stores in 44 states compared with 470 stores in 44 states at the end of the third quarter of fiscal 2016. As of the end of the quarter, 392 of our 461 stores were in our newest format.

Additionally, our total square footage was 2.37 million square feet as of the end of the quarter compared to 2.403 million square feet at the same time a year ago..

And now I'll turn it over to Bob Carlberg, our Senior Vice President on Men's Merchandising. .

Good morning, everyone. I'd like to start by highlighting the performance of our men's merchandise categories for the quarter. Men's merchandise sales for the quarter were down approximately 0.5%. Average denim price points decreased from $89.15 in the third quarter of fiscal 2016 to $85.30 in the third quarter of fiscal 2017.

For the quarter, our men's business was approximately 49% of net sales compared to 46% last year. And average men's price points decreased approximately 6.5% from $55 to $51.50..

Knits, accessories, footwear and youth all grew in dollars as well as units for men's Q3. In knits, our 2-for price points [launched] new screen prints, and new brands performed well. For accessories, glasses, fragrance, socks, boxers and hats were drivers. In youth, it was denim and short-sleeved tees, which led to the increase.

Denim and button fronts have stabilized and finished close to flat. Sweaters and outerwear continue to move later into the season and become more of a Q4 business. .

For both men's and women's, we will anniversary our GWP program for Thanksgiving specials to reward guests. We're encouraged by the trends we're seeing across several categories and excited about the potential moving into Q4 and holiday. .

And with that, I'll turn it over to Kelli Molczyk, Vice President of Women's Merchandising, to discuss the performance of our women's merchandise categories. .

Thanks, Bob. Women's merchandise sales for the quarter were down approximately 11.5%. Average denim price points decreased from $87.20 in the third quarter of fiscal 2016 to $81.35 in the third quarter of fiscal 2017. For the quarter, our women's business was approximately 51% of net sales compared to 54% last year.

And the average women's price point decreased approximately 6% from $47.35 to $44.45..

In regards to denim, our total denim inventory as well as our inventory in markdown denim remained down from a year ago. However, our denim inventory position in sales improved as we progressed through the quarter. Our denim inventory mix has continued to shift to more entry-level price point brands ranging from $40 to $70.

Positive responses in Q3 were centered around comfort fabric, a variety of finishes and the expansion of signature fits..

For footwear, we saw a nice response to our expansion in our quality footwear selection by introducing tests from Sorel for select stores and expanding our tests from brands, such as UGG and Timberland. We saw a resurgence in our lifetime leather category as well as continued success in our casual shoe and boot assortment..

With the strategic approach in pushing back the release of our heavier fall categories, such as sweaters and outerwears, in Q3, we saw a nice reaction consistently through the quarter. For sweaters, we saw gains in sales throughout the quarter.

And for outerwear, the majority of our heavyweight mix arrived at the very end of the quarter, impacting our quarter result. We did, however, see increases as the quarter progressed as we continue to focus on consistent flow of buy now, wear now third layer options..

The newness continues to be well received by our stores and guests as the quarter's strength centered around casual comfort, value pieces and competitively priced goods. Important to also note the continued growth in our dress, romper and skirt categories, although still a small part of the business.

Based on our current inventory levels and planned receipts, we believe we are well positioned heading into the holiday season..

On a combined basis, accessory sales for the quarter were down approximately 5.5%, while footwear sales were down 3.5%. These 2 categories accounted for approximately 8.5% and 6.5%, respectively, of our third quarter net sales, which compares to 8.5% and 6% for each in the third quarter of fiscal 2016.

Average accessory price points were up approximately 1.5%, and average footwear price points were down approximately 5%..

Again, on a combined basis for the quarter, denim accounted for approximately 43.5% of sales, and tops accounted for approximately 34%, which compares to 45% and 32% for each in the third quarter of fiscal 2016. Our private label business continues to grow and represented approximately 38% of sales..

And with that, we welcome your questions. .

[Operator Instructions] Our first question comes from the line of Tiffany Kanaga with Deutsche Bank. .

We just heard from Abercrombie, which is seeing second half gross margin declines much deeper than expected, and you're rolling off the favorable compares to the loyalty program, while your gross margin increases over the past 2 quarters have certainly been impressive.

Do you think you can continue to drive increases, especially in what looks to be a potentially more promotional holiday season in the mall and as you're still seeing mid-single-digit apparel price point declines? Additionally, what do you see as the time frame until we can expect price point stabilization?.

Well, we feel good about our inventory at this point. So we would feel that the margins, that we can continue to do well there. At price points, I think we'll probably -- could be the start of summer for the ladies, to have the price points level out; and in the men's denim area, might even be into the second quarter. .

And as a follow-up question, the tick up in private label penetration was a change from prior trends.

Can you talk about any shift in strategy there? And if there are particular categories where you're seeing the penetration increase?.

Bob, do you want to handle that for men's?.

Sure. What we've done is we've built extra private brands to make sure that we are able to address any lifestyle. And so 2 years ago, we added Departwest, which has become somewhat of an introductory price point in fashion for us.

And we introduced Outpost, which is the finer fabrics and a little bit more expensive to go along with the Reclaim BKE and Buckle Black that we have. There were holes in both of those places, both on a nationally branded side and even within our own private brand, so I think that was the key determinant of our growth in the private label side.

And both of those bands are full departmental brands, so they include everything from footwear to beanies. .

Kelli, do you have some?.

I'd say very similar on the women's side. We build private label brands around categories or product that we don't find in the market. And we continue to build labels around looks or categories that we wouldn't find elsewhere. .

And I believe our BKE brands, on both the men's and women's, continue to do very nicely as -- in helping that growth in private label. .

Do you have any sort of breakdown in private label growth trends in the quarter versus branded?.

No, that's something that we've never given out, just the percentage of the business. .

[Operator Instructions] And our next question comes from the line of Jarrod Edelen with South Dakota Investments. .

Can you talk about any geographic areas where you're seeing either strength or weakness? And any change in that year-over-year?.

Thank you, Jarrod. For the most part, we are -- just continue to see strength in our western stores and improvement through certain Midwest stores. But a lot of it is dependent on the store managers and their teams, and how they're developing. So I wouldn't be able to call out like a certain region that is a total region is being affected by business.

But it's kind of on a case-by-case basis. .

[Operator Instructions] And there are no questions from the phone at this time. .

Okay. There's no additional questions there, we can wrap it up and we can be quick today. Thanks, everyone, for your participation, and have a happy Thanksgiving. .

Ladies and gentlemen, this conference will be available for replay after 10:30 a.m. today through 11:59 p.m. on December 1, 2017. You may access the AT&T teleconference replay system at any time by dialing 1 (800) 475-6701, and entering the access code 432975. International participants may dial (320) 365-3844.

That does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect..