Ladies and gentlemen, thank you for standing by, and welcome to The Buckle's first quarter earnings release. [Operator Instructions] And as a reminder, your conference is being recorded.

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

As they review the operating results for the first quarter, which ended May 5, 2018, they would like to reiterate the policy of 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 are subject to change based on factors which may be beyond the company's control. Accordingly, the company's future performance and the 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 statement 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 recording of the company's quarterly conference calls without its expressed written consent. Any unauthorized reproduction 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 Tom Heacock. Please go ahead. .

Good morning, and thanks for joining us this morning.

Our May 25, 2018, press release reported that net income for the 13-week first quarter ended May 5, 2018, was $18.3 million or $0.38 per share on a diluted basis compared to net income of $16.3 million or $0.34 per share on a diluted basis for the prior year 13-week first quarter, which ended April 29, 2017. .

Net sales for the 13-week first quarter decreased 3.5% to $204.9 million compared to net sales of $212.3 million for the prior year 13-week first quarter. Comparable store sales for the 13-week fiscal period ended May 5, 2018, decreased 3.1% from comparable store sales for the prior year 13-week period ended May 6, 2017.

Online sales increased 6.1% to $23.1 million for the 13-week fiscal period, which compares to sales of $21.8 million for the prior year 13-week fiscal period. .

For the quarter, UPTs decreased approximately 1%, the average unit retail decreased approximately 0.5% and the average transaction value was down about 1.5%. Gross margin for the quarter was 38.9%, up 40 basis points from 38.5% in the prior year first quarter.

The year-over-year increase was the result of an 80 basis point improvement in merchandise margins, which was partially offset by slightly deleveraged occupancy buying and distribution expenses. .

Selling expenses for the quarter were 22.4% of net sales compared to 22.1% of sales for the first quarter of fiscal 2017 with the increase primarily the result of increased payroll investment in our store management and store teammates. .

General administrative expenses for the quarter were 5.1% of net sales compared to 4.6% of net sales for the first quarter of fiscal 2017, with the increase primarily attributable to an increase in home office payroll, largely a result of strategic investments in our IT teams. .

Our operating margin for the quarter was 11.4% compared to 11.8% for the first quarter of fiscal 2017. Other income for the quarter was $1.5 million compared to $0.9 million for the first quarter last year. .

Income tax expense as a percentage of pretax net income for the quarter was 25.9% compared to 37.3% for the first quarter last year, bringing first quarter net income to $18.3 million for fiscal 2018 compared to $16.3 million for fiscal 2017. .

inventory of $118.2 million, which was down approximately 1% from inventory of $119.4 million as of April 29, 2017, and total cash and investments of $241 million, which compares to $237.4 million at the end of fiscal 2017 and $276.7 million as of April 29, 2017.

At quarter end, inventory in a comparable store basis was down approximately 2.5% and total markdown inventory was down compared to the prior year. We ended the quarter with $145.9 million in fixed asset net of accumulated depreciation. Our capital expenditures for the quarter were $3.5 million, and depreciation expense was $6.9 million. .

$3 million for store remodels and store technology updates and $0.5 million for capital spending at the corporate headquarters and distribution center. For fiscal 2018, we do not currently have any new stores planned and anticipate completing 4 full remodeling projects, which includes 2 for spring, 1 for back-to-school and 1 for holiday.

Based on current plan, we still expect our capital expenditures for the year to be in the range of $10 million to $15 million, which includes both planned store projects and IT investments. .

During the quarter, we closed one store, and we also closed one additional store in May after the end of the quarter. Buckle ended the quarter with 456 retail stores in 43 states compared with 462 stores in 44 states at the end of the first quarter last year.

Additionally, our total square footage was 2.341 million square feet as of the end of the quarter compared to 2.367 million square feet at the same time a year ago. .

Now I'll turn the call over to Kelli Molczyk, our Vice President of Women's Merchandising. .

Good morning. I'd like to start by highlighting the performance of our women's merchandise categories for the quarter. Women's merchandise sales for the fiscal quarter were down approximately 8% against the prior year fiscal quarter. Compared to the same 13-week period a year ago, women's merchandise sales were down approximately 8.5%.

Average denim price points decreased from $85.50 in the first quarter of fiscal 2017 to $82.45 in the first quarter of fiscal 2018. For the quarter, our women's business was approximately 50.5% of net sales compared to 53% last year, and average women's price points decreased about 1.5% from $45.60 to $44.85. .

For the women's business, we are pleased to highlight the increased margins and the reduced markdowns coming off of the first quarter. In addition, we're continuing to see nice responses to our full length denim assortment and a variety of fits and bottom openings from all brands. And throughout the quarter, our denim inventory gradually improved.

We plan to have our denim inventory built back up for the second half of the year. .

The initial response to the spring seasonal categories was a bit slower to start as guest continue to respond to more buy now, wear now product favoring full-length denim, long-sleeved tops and outerwear over denim crops, swim, shorts and sandals.

Towards the end of the quarter, however, we started to see a lift in more seasonal categories as the climates changed and our intentional delayed receipts on more bare products has played in our favor.

We continue to see nice responses from guests to the newness of product with our in-house brands, seeing a nice increase in performance as well as several new outside brand releases that have added new looks for loyal guests, while also offering freshness that creates opportunities to capture new guests. .

We saw a lift in shoe price points with the expansion and resurgence of our Western boot assortment as well as the expansion of our other branded -- better branded footwear, not only in shoes but in many other fashion -- faster fashion categories like fashion pants, fashion denim, rompers and fashion tops by consistently managing our inventories to be nimble to market trends and responses.

The team continues to be diligent and working on opportunities within the business with vendors centered around stock buys, flexible replenishment programs and real-time order adjustments. We have continued to level out our inventories in key categories for stores to better service guests needs and offer a variety of exclusive and unique product.

With our inventories in a manageable position and working with more regular priced goods, we are encourage for the opportunities for business. .

And with that, I will turn it over to Bob Carlberg, our Senior Vice President of Men's Merchandising, to discuss the performance of our men's merchandise categories. .

Thanks, Kelli. Men's merchandise sales for the first quarter were up approximately 2.5% against the prior year fiscal quarter. Compared to the same 13-week period a year ago, men's merchandise sales were up approximately 1%.

Average denim price points decreased from $90.65 in the first quarter of fiscal 2017 to $88.05 in the first quarter of fiscal 2018. For the quarter, our men's business was approximately 49.5% of net sales compared to 47% last year, and average men's price points decreased approximately 2% from $53.10 to $51.95. .

Q1 saw a slower selling in true summer categories than expected. We did clear more fall/winter product giving us room to add more newness for Q3. In the latter part of the quarter, we saw a pickup in shorts, tanks and flips. Overall response from guests and teammates has been positive to the spring/summer product.

Denim was very strong in Q1 with BKE, Rock and Salvage all having great quarters. Graphic tees that popped with new base colors as well as added colors into the screened print giving our guests the reason to add to their wardrobe. We had a good combination of tried and true brands as well as a great response to our newer brands..

Turning to results on a combined basis. Accessory sales for the fiscal quarter were down approximately 4.5% against the same 13-week period a year ago. While footwear sales were down about 1%, these 2 categories accounted for approximately 8.5% and 6.5%, respectively, of first quarter net sales for both fiscal 2018 and fiscal 2017.

Average accessory price points were up approximately 2% and average footwear price points were up approximately 7%. Again, on a combined basis for the quarter, denim accounted for approximately 43% of sales and tops accounted for approximately 30.5%. This compares to 42% and 30% for each in the first quarter of fiscal 2017.

Our mix of private label product continues to grow and represented just over 34% of sales for the quarter. .

And with that, we welcome your questions. .

[Operator Instructions] Our first question is from Tiffany Kanaga from Deutsche Bank. .

I'd like to dig into your gross margin performance.

Would you compare the first quarter to the significant expansion you achieved in the fourth and discuss what was different this time around? And in particular, if you could quantify what accounting impact may have benefited the fourth quarter and how those items might have factored into the first?.

As far as the accounting on the gross margin, I mean, this year is really apples-to-apples looking at first quarter to first quarter a year ago. We had the benefit through most of last year of the loyalty impact which, actually, we phased out during 2016. So when you look at gross margin now, I mean, there's really no accounting impact.

It's truly merchandise margins. Both Kelli and Bob seemed to have done a nice job with the product, managing inventory, reducing markdowns and growing our private label.

So we saw a nice increase in merchandise margins and then some opportunities have been able to reduce rent and saw some of that merchandise margin expansion offset by deleverage, but that was really pretty minimal. .

And if I could follow up with a housekeeping question.

I'd like to confirm if there are no adjustments to your financial due to the revenue recognition rules that we've been seeing in reports from many other retailers?.

Some changes to revenue recognition, good question. So -- but for the most part, I mean, they were pretty minor. I think we called it out in the 10-K and in our filings last year, mostly around the reserve for sales returns.

The classification of gift card breakage is now in revenue versus being in other income before, so there were some minor adjustments but not very material. .

Our next question is from Steve Marotta from CL King & Associates. .

Dennis, could you please update us on new channel initiatives, items that are being -- where you are right now, items that are being implemented this year and how you feel that will competitive advantage you going forward?.

Well, we're investing in our team and in improving some of our technology to be more personalized marketing going forward. We're actually working on improving our search on our e-com site, and so it's kind of a continued progress with bringing on some new executives to help with it -- with this process.

So it's kind of a gradual build up, but something we're continuing to work on. .

What about buy online and pick up on store, where are on that? Where are you if somebody goes into the store and you're out of size, can they buy in-store and have it shipped home for free? Can you talk a little about that dynamic?.

Yes. We've always done special orders and that's been a nice part of our business, so that is still consistent. But we also added, last fall, to ship to store, buy online. So the guest can have that choice to, when they buy online, to pick up in the store or ship to them direct.

So -- and we also have the app where they can reserve product in the store and go in and make that purchase as well. .

Last question is, can you remind us how many of your stores will come up for renewal this year? And what kind of rent concessions are you seeing in those renewals, say, either year-to-date or over the course of the last year?.

Last year and this year, we had about 90 renewals, and we're in the process of working a lot of those renewals for this next year at the present time. And we're negotiating, whether it be 30-day renewals, year-to-year, 2 to 3 years is not uncommon and on occasion going out to 5 years.

But depending on the quality of the property, it has certainly made a difference in adjusting our rents. So that's a work in progress, but we feel like that's going pretty well. .

[Operator Instructions] And our next question is from the line of Carlton Getz with Winter Harbor Capital. .

Question on the store closures. It looks like the store that was closed in the quarter was the location in Massachusetts, which was the company's only, up there. I had a question concerning the lack of locations in some of the more urban population areas in the West Coast and New England.

Is there a sense of that the brand does not translate very well there outside of the Midwestern base? Or what's the cause for the retreat in those regions?.

A lot of that is the economics of doing business in those areas as well as where we promote managers from within. Sometimes, to get the quality of our manager to want to move even in these nicer areas like that, they have a tendency to want to drift back toward the homeland.

So -- but mostly it's the economics for the amount of the business we're doing, the economics don't make sense. .

Is that a shift from a few years ago when the revenues per store where higher? Is that what's driving the economics on that end or is it local market condition separate from that?.

I think it's partly the higher price points when we're able to sell denim from $100 to $160, that was a bigger part of our business. Now we still have that business but at a smaller level. So that's kind of the gist of that. .

And then one more, if I could. The -- I've lost my notes here. If I find it again, I'll dial back in. .

[Operator Instructions] And at this time, there are no further questions in queue. Please continue. .

If there are no further questions, we can wrap it up, or if Carlton has his question again we can -- we're happy to answer that. But otherwise, we can wrap it up and hope everyone has a wonderful holiday weekend. .

Thank you. And ladies and gentlemen, that does conclude our conference for today. And this conference will be made available for replay today after 11:00 a.m. through June 8. You may access the replay system at any time by dialing 1 (800) 475-6701 and entering the access code 449137. International callers can 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..