Ladies and gentlemen, thank you for your patience in standing by, and welcome to The Buckle's Second Quarter Earnings Release. [Operator Instructions] And just a brief reminder, today's 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 second quarter, which ended August 4, 2018, we 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 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 they 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 reproductions or recordings of the call should not be relied upon as the information may be inaccurate. .

And at this point, I'd now like to turn the conference over to Tom Heacock. .

Good morning, and thanks for joining us this morning.

Our August 24, 2018, press release reported net income for the 13-week second quarter, which ended August 4, 2018, was $15.7 million or $0.32 per share on a diluted basis compared to net income of $11.5 million or $0.24 per share on a diluted basis for the prior year 13-week second quarter, which ended on July 29, 2017.

Year-to-date net income for the 26-week period ended August 4, 2018, was $34 million or $0.70 per share on a diluted basis, which compares to net income of $27.8 million or $0.57 per share on a diluted basis for the prior year 26-week period ended July 29, 2017. .

Net sales for the 13-week second quarter increased 2.8% to $201.1 million compared to net sales of $195.7 million for the prior year 13-week second quarter. Comparable store sales for the 13-week fiscal period ended August 4, 2018, increased 1.4% from comparable store sales for the prior year 13-week period ended August 5, 2017.

Online sales increased 8.6% to $21.2 million for the 13-week fiscal period, which compares to net sales of $19.5 million for the prior year 13-week fiscal period.

Year-to-date, net sales decreased 0.5% to $406 million for the 26-week fiscal period ended August 4, 2018, compared to net sales of $407.9 million for the prior year 26-week fiscal period ended July 29, 2017. .

Comparable store sales for the year-to-date period were down 0.9% in comparison to same 26-week period in the prior year, and online sales decreased 7.3% to $44.3 million, which compares to net sales of $41.3 million for the prior year 26-week fiscal period.

For the quarter, UPTs increased approximately 4%, the average unit retail decreased approximately 3% and the average transaction value increased about 1%. Year-to-date, UPTs increased approximately 1.5%, the average unit retail decreased approximately 2% and the average transaction value decreased approximately 0.5%. .

Gross margin for the quarter was 39.2%, up 130 basis points from 37.9% for the prior year's second quarter. The year-over-year increase was the result of a 100 basis point reduction as a percentage in net sales in occupancy buying and distribution costs and a 30 basis point improvement in merchandise margin.

For the year-to-date period, gross margin was 39.1%, up approximately 90 basis points from 38.2% for the same period last year. The increase for the year-to-date period was the result of a 35 basis point reduction in occupancy, buying and distribution costs and a 55 basis point improvement in merchandise margin. .

Selling expenses for the quarter were 23.8% of net sales compared to 23.9% of net sales for the second quarter of fiscal 2017. Year-to-date, selling expenses were 23.1% of sales compared to 22.9% in fiscal 2017. .

General and administrative expenses for the quarter were 5.4% of sales compared to 5.1% of net sales for the second quarter of fiscal 2017. And year-to-date, G&A expenses were 5.3% of sales compared to 4.9% in fiscal 2017.

The current year G&A increase is primarily attributable to increased IT investments, both in terms of increased home office payroll as well as spending for other strategic initiatives. .

Our operating margin for the quarter was 10% compared to 8.9% for the second quarter of fiscal 2017. And for the year-to-date period, our operating margin was 10.7% compared to 10.4% for the same period last year.

Other income for the quarter was $1 million compared to $0.9 million for the second quarter of fiscal 2017, and other income for the year-to-date period was $2.5 million compared to $1.8 million in the prior year. .

Income tax expense as a percentage of pretax net income for the quarter was 25.9% compared to 37.3% for the second quarter of fiscal 2017, bringing second quarter net income to $15.7 million for fiscal 2018 versus $11.5 million for fiscal 2017.

Year-to-date, income tax expense was also 25.9% of pretax net income compared to 37.3% for fiscal 2017, bringing year-to-date net income to $34 million for fiscal 2018 compared to 27.8% -- $27.8 million for fiscal 2017. .

inventory of $127.9 million, which was up approximately 5% from inventory of $121.7 million as of July 29, 2017; and total cash and investments of $237.8 million, which compares to $237.4 million at the end of fiscal 2017 and $262.1 million as of July 29, 2017.

At quarter-end, inventory on a comparable store basis was up approximately 2.5%, and total markdown inventory was down compared to the prior year. We ended the quarter with $141.2 million in fixed assets, net of accumulated depreciation. Our capital expenditures for the quarter were $2.6 million, and depreciation expense was $7 million. .

$5.2 million for store remodels and store technology upgrades and $0.9 million for capital spending at the corporate headquarters and distribution center. .

For fiscal 2018, we do not currently any have new stores planned. During the quarter, we completed 3 full remodeling projects and anticipate completing 1 additional full store remodel prior to holiday.

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

We also closed 1 store during the quarter, ending the period with 455 retail stores in 43 states compared with 463 stores in 44 states at the end of the second quarter of fiscal 2017. Additionally, our total square footage was 2.339 million square feet as of the end of the quarter compared with 2.373 million square feet at the same time a year ago. .

And now I'll turn it 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 1.5% against the prior year fiscal quarter. Compared to the same 13-week period a year ago, women's merchandise sales were down approximately 3.5%.

Average denim price points decreased from $81.25 in the second quarter of fiscal 2017 to $75.85 in the second quarter of fiscal 2018. .

For the quarter, our women's business was approximately 46.5% of net sales compared to 49.5% last year, and average women's price points decreased about 4.5% from $40.50 to $38.70. For women's, we were able to successfully manage the business during the quarter, allowing us to both increase margins and reduce markdowns.

For denim, we are happy to see the performance in unit sales, driven by fashion denim detailing, alternative inseams and a breadth of bottom openings. Important to note the receipt of about 30% of our denim for the quarter was received in the month of July, with about 40% of that being delivered the very last week of the month or the quarter. .

Outside full-length denim, our denim short gained momentum later in the season, with us ending the quarter in a very comfortable inventory position.

Outside denim and shorts, we saw nice trends in our fashion wovens and fashion paint categories as well as building on incentive programs, where guests buy in more savvy price points, as they buy multiples of select styles and categories. .

Continuing to consistently evaluate and review in-season purchases with available buy now, wear now products has added business for our stores and our online business.

In addition, the more consistent newness for certain stores and online, we've made adjustments to our online presentation of products on the women's side, and has seen individual skew list as well as a total increase in our online business. .

Newness in products, styling and brands continues to drive the women's business. We keep introducing new brands as we find those relevant to Buckle as well as build on test and positive reads we then receive with new brands and products. .

Q2's presumably somewhat of a seasonless shopping pattern, where bare short-sleeve and long-sleeve products saw strength as well as all lengths in our bottoms as long as they were new and relevant to our guests. The team has worked to refocus our used business by resourcing our products for sharper retails and mini-me type look.

We've added stores to this business and are seeing nice increases in unit sales, a nice addition to the business as we continue to build loyalty to Buckle. .

We end the quarter in a very comfortable inventory position by category and asset total for the women's side. We continue to leave room for opportunities in the business, which has allowed us maneuverability with ever-changing women's fashion trends. .

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

Thanks, Kelly. Men's merchandise sales for the fiscal quarter were up approximately 9.5% against the prior year fiscal quarter. Compared to the same 13-week period a year ago, men's merchandise sales were up approximately 6%.

Average selling price has decreased from $87.55 in the second quarter of fiscal 2017 to $85.20 in the second quarter of fiscal 2018. .

For the quarter, our men's business was approximately 53.5% of net sales compared to 50.5% last year, and average men's price points decreased approximately 3% from $47.85 to $46.55. Men's growth was well balanced with all departments growing, except for casual bottoms, which is a small part of our business.

Denim, short-sleeved button fronts, graphic tees, the buy more, save more programs, footwear, hats and fragrance were all standouts from Q2. .

As you heard from Tom, our markdown is well under control, and we're comfortable with the amount and quality of our inventory at the end of the quarter. The early response to our bulk product has been good.

As we discussed the last 2 years, we deliver lightweight product and spring summer colors early and wait until the end of August and into September to deliver sweaters and other heavier knits. The response has been excellent inventory to our added inventory in long-sleeved graphic tees.

And boots are also having a nice start, which is encouraging for our footwear season that has already been growing at double digits. .

Now 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 up about 8.5%.

These 2 categories accounted for approximately 9.5% and 6.5%, respectively, of second quarter net sales, which compares to 10.5% and 6.5% for each in the second quarter of fiscal 2017. Average accessory price points were down approximately 1%, and average footwear price points were up approximately 1.5%. .

On a combined basis for the quarter, denim accounted for approximately 32.5% of sales, and tops accounted for approximately 34.5%. This compares to 32% and 34% for each in the second quarter of fiscal 2017. Our mix of private-label product remained steady during the quarter, representing approximately 32.5% of net sales. .

And with that, we welcome your questions. Thank you. .

[Operator Instructions] First, we go to the line of Tiffany Kanaga of Deutsche Bank. .

Are you able to quantify the calendar shift impact to gross margin? Or put another way, on a non-shifted basis, would you have seen your occupancy gross margin leveraged or deleveraged? And additionally, you posted another positive merchandise margin performance.

So can you help walk us through the key drivers there, especially as AUR decelerated in the quarter?.

I think the first question on the impact of the shift in weeks, I don't know we'll give out the gross margin, but the overall impact to revenue was about $5 million. And so I think we still would have seen leverage of occupancy buying and distribution without the shift in the weeks but have not quantified that.

The second question, on merchandise margins, is that it, Tiffany?.

Yes. .

I don't know. I mean, again, I think we see nice growth consistent in past quarters, continue to build our private-label business and have a nice representation of product and buildout, which is obviously good for margins. And then the bigger driver for the second quarter was probably a reduction in markdowns. .

And if I could sneak in another one. Thanks for all the details from Kelli on women's. I'd love to get some additional big picture color around how you're approaching the business, which continues to underperform.

What do you think are the biggest missing pieces between your performance today versus achieving positive comps in women's? And what's the time line to get there? And additionally, what's the updated time line in your view for when we might expect price points to stabilize on that side of the floor, given that the declines deepened compared to the first quarter?.

We're working through a shift, I would say, in our product assortment. So that takes a little bit of time to work through what we have and continue to find the right spot, the right locations for the right products. We've introduced more brands within the past 6 months. So it's finding the right locations in our stores that respond to those brands.

And as far as the time line, I think the price points will probably be pretty similar for the next quarter. So we're seeing a lot of strength in some of that denim that's in that $69 to $75 price point versus the over $100 denim that we were a year ago. So we have a lot of good things to build on. .

[Operator Instructions] Next, we go to the line of Steve Marotta of CL King & Associates. .

And I just have another gross margin question. I understand the reticence in specifically breaking out what would have been otherwise. But with 100 basis points decrease in occupancy costs on a comp that's just over 1.4%, that does imply, at least in general terms, some perhaps favorable rent treatments on stores that are re-upping recently.

Can you talk a little bit directionally about rent and store rent in recent lease renewals?.

Steve, this is Dennis. We've had close to 100 renewals the last couple years. And we look at each one on particular situations, and we've been able to improve rents in the majority of those situations and evaluated going forward, continued shorter-term leases to see opportunity to do so.

Naturally, your very strong standards, you have less flexibility with. But in a number of cases, we've been able to reduce rents and improve situations. And also with some of the department store closings in the future, that might provide some opportunities because of cotenancy that would be favorable. .

Would you say that any of the rent re-lease that you received this year has accelerated or decelerated since, say, the previous year or the year before that? In other words -- and I know that you wouldn't give out what the absolute rent reductions are, unless you'd like to, but would you say that it's higher or lower for, again, rents that have been already negotiated for the current year versus last year?.

We -- there has been definitely improvement from this year from last year. And so we've had continued progress there. .

Did some of that -- but am I wrong in that gross margin analysis? Did some of that rent re-lease play into the occupancy deleverage in the quarter? Or was it mostly that week shift?.

It was both. And I think as we've closed a certain number of stores, that's brought rent down. As Dennis mentioned, as we had rent reduction, that certainly brought down the leverage point from where it has been historically to a lower number. So a combination of both those factors, and then also the shift of the weeks. .

My last question is, does this shift in the weeks, can you go over that a little bit? I know you don't give guidance, and I'm not asking specifically for guidance for the third and fourth quarter, but can you talk a little bit about the dynamic of what the week's shift will do to results in the third and fourth quarter? And clearly, obviously, fourth quarter would not benefit from the extra week last year.

.

I think -- and so looking at the $5 million shift in the second quarter, we'll give part of that back in the third quarter. I don't know if it's about half of that, somewhere about that range. And then the fourth quarter will be -- we'll give the rest back and then obviously have the impact of one fewer week. .

We do have a follow-up from the line of Tiffany Kanaga with Deutsche Bank. .

I'd like to get your views on denim as a category into back-to-school and holiday.

Would you give us a style update on what you're seeing in terms of silhouettes and fits and overall demand versus other options like leggings and athletic?.

We can also hit on the men's if you want to address that first, Bob, and then Kelly can take the second part. .

Sure. We're still having good success with the embellished product on the men's side, although we're certainly seeing a cleaning up of the products as we get additional guests into the store. A slimming of the silhouettes has happened along with the smaller bottom openings.

So we probably have -- well, not we probably have -- we have a much better selection of that cleaner product on the floor, and think that we're getting a new guest in that -- on that side of the business. .

For women's, I kind of mentioned it, but we're seeing a lot of strength kind of across the board in different inseams, different bottom openings. We've introduced more of the flare bottom opening within the past quarter. We're having good success in the ankle-length denim, which is just an easy length transition into fall.

And then we continue to have, like I said, strong quarter on our shorts and our crop inventory. So it's kind of across the board, which is nice. .

At this point, we have no further questions here in queue by phone. .

If there are no other questions, we can wrap it up for today and want to thank everybody for their participation. And enjoy the rest of the day, and have a great weekend. .

Ladies and gentlemen, that does conclude the conference for this morning. We do thank you very much for your participation and using AT&T's Executive TeleConference service. A replay of today's event will be available from 11:00 a.m. through September 7, 2018.

You can access it by dialing (800) 475-6701 or alternatively at (320) 365-3844 using the access code of 453068. Again, we thank you very much for all of your participation. You may now disconnect..