Ladies and gentlemen, thank you for standing by, and welcome to The Buckle's Second Quarter Earnings Release Conference call. [Operator Instructions] As a reminder, today's conference is being recorded.

Members of 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; Bob Carlberg, Senior Vice President of Men's Merchandising; and Brady Fritz, General Counsel and Corporate Secretary.

As they review the operating results for the second quarter, which ended August 3, 2019, they would like to reiterate their policy of not giving future sales or earnings guidance and have the following safe harbor statement under the privacy -- 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 may 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 calls should not be relied upon as the information may be inaccurate. .

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

Good morning, and thanks for joining us this morning.

Our August 23, 2019, press release reported a net income for the 13-week second quarter, which ended August 3, 2019, was $16.4 million or $0.34 per share on a diluted basis, which compares to net income of $15.7 million or $0.32 per share on a diluted basis for the prior year 13-week second quarter, which ended August 4, 2018.

Year-to-date net income for the 26-week period ended August 3, 2019 was $31.5 million or $0.65 per share on a diluted basis, which compares to net income of $34 million or $0.70 per share on a diluted basis for the prior year 26-week period, which ended August 4, 2018. .

Net sales for the 13-week second quarter increased 1.4% to $203.8 million compared to net sales of $201.1 million for the prior year 13-week second quarter. Comparable store sales for the quarter increased 1.8% in comparison to the same 13-week period in the prior year and online sales increased 9.2% to $23.1 million.

Year-to-date, net sales decreased 0.2% to $405.1 million for the 26-week fiscal period ended August 3, 2019 compared to net sales of $406 million for the prior year 26-week fiscal period, which ended August 4, 2018.

Comparable store sales for the year-to-date period were up 0.3% in comparison to the same 26-week period in the prior year and our online sales increased 7.3% to $47.5 million. .

For the quarter, UPTs increased approximately 3%; the average unit retail decreased approximately 4%; and the average transaction value decreased about 1%. Year-to-date, UPTs increased approximately 3.5%; the average unit retail decreased approximately 4%; and the average transaction value decreased approximately 0.5%.

Gross margin for the quarter was 38.6%, down 60 basis points from 39.2% in the prior year second quarter. The year-over-year decrease was the result of a 70 basis point reduction in merchandise margin, partially offset by a 10 basis point improvement as a percentage in net sales in occupancy buying and distribution costs. .

For the year-to-date period, gross margin was 38.4%, down approximately 70 basis points from 39.1% for the same period last year. The decrease for the year-to-date period was the result of a 50 basis point reduction in merchandise margin and a 20 basis point increase in occupancy buying and distribution costs.

Selling expenses as a percentage of net sales for the quarter remained flat at 23.8%. Year-to-date, selling expenses were 23.5% of sales compared to 23.1% in fiscal 2018. For both periods, increases in store favorable expense and online fulfillment and marketing expenses were offset by reductions in certain other selling expenses.

General and administrative expenses for the quarter were 5.2% of net sales compared to 5.4% of net sales for the second quarter of fiscal 2018. Year-to-date, G&A expenses were 5.4% of net sales compared to 5.3% in fiscal 2018.

The year-to-date 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. .

inventory of $129.1 million, which was up approximately 1% from inventory of $127.9 million as of August 4, 2018; and total cash and investments of $245.6 million, which compares to $238.8 million at the end of fiscal 2018 and $237.8 million as of August 4, 2018. .

$3.9 million for store build-out, remodeling and technology upgrades; and $0.3 million for capital spending at the corporate headquarters and distribution center. .

During the quarter, we opened 1 new store in Kalispell, Montana; completed 2 full remodeling projects and closed 1 store, bringing our year-to-date count to 1 new store, 3 full remodels and 2 store closures. We also anticipate competing 1 additional full store remodel prior to holiday.

Based on current plans, we still expect our capital expenditures to be in the range of $8 million to $12 million, which includes both planned store projects and IT investments. Buckle ended the quarter with 449 retail stores in 42 states compared with 455 stores in 43 states at the end of the second quarter of fiscal 2018. .

Additionally, our total square footage was 2.32 million square feet at the end of the quarter compared to 2.339 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.

Thanks, Tom. I would 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 up approximately 0.5% against the prior year fiscal quarter.

Average denim price points decreased from $75.85 in the second quarter of fiscal 2018 to $72.55 in the second quarter of fiscal 2019. .

For the quarter, our Women's business was approximately 46% of net sales compared to 46.5% last year, and average women's price points decreased about 6% from $38.70 to $36.50.

Our continued focus on timing deliveries to align with the guests' shifted shopping patterns for the spring and summer seasons resulted in a positive quarter in several categories of the women's business. For denim, ankle length, curvy fits in various patterns and destructed finishes created excitement within our assortment driving Q2 purchases.

Our exclusively developed branded denim as well as our private-label denim brands resonated with guest's shopping their favorite fits and finding new details for additional purchases. Price point denim remains important with retails predominantly around and under $80.

We continue to introduce new brands into our denim roster where we have recently added Wrangler denim in top stores and have expanded our selection with Levi's.

As a tie to our initiatives and offering products for everybody, we recently launched a new fall marketing campaign around a denim for everybody message, to reinforce and highlight all the different body types and styles that we can fit in our denim and have been encouraged by early feedback to the campaign.

For tops, we were pleased to see so many different looks working, different sleeve lengths, light-to-heavier weight fabrics and tanks to sweaters were all well received.

Our graphic tee business, fashion sweater mix and bra-led assortment offered a wide breadth of options for guest to pair and wear with their favorite denim or fashioned shorts through the quarter. .

Just are -- as we are doing with denim, we continue to evolve our brand offering and tops to have something for everybody. In addition to key brands like Billabong, White Crow and Free People, we are building upon our private-label assortment to expand our selection and offer newness for each and every guest shopping our stores.

Women's shoes and accessories carried nicely through the quarter with new brands and new categories creating excitement and giving guests reasons to add to their cart.

In accessories, our specialty bracelet, fragrance, belts and earings added dollars and units to the category, while in shoes our casual mix of footwear and flatform sandals made for easy pairings as the apparel.

The team did a nice job of controlling inventory in seasonal categories from spring and summer, and we look forward to building from Q2 with opportunities for the fall and holiday months.

For fall, we continue to plan various events aimed at enhancing guests engagement, which includes partnering with Urban Cowboy, a boutique bed and breakfast in Nashville, Tennessee to offer the ultimate Nashville experience as well as partnering with the American Cancer Society as the official sponsor of their national denim days in October.

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

Thank you, Kelli. Men's merchandise sales for the fiscal quarter were up 2.5% in comparison to the prior year fiscal quarter. Average denim prices increased from $85.20 in the second quarter of fiscal 2018 to $85.60 in the second quarter of fiscal 2019.

For the quarter, our men's business was approximately 54% of net sales compared to 53.5% last year, and average men's price points decreased approximately 2.5% from $46.55 to $45.45. And probably our talented buying team has continued to partnering with vendors to design great product, build brands and serve our guests.

As a result, the second quarter represented our seventh consecutive quarter of positive comps on the men's side. Strong categories include denim, button fronts, youth and footwear. For the quarter, shorts were the only disappointing category, but we were able to adjust both inventory and selection, setting us up for next year.

Our private brands continue to be strong with styles and selection to represent all our lifestyles. Veece is our newest private brand, which went all-store for the first time in the second quarter. Our traditional west coast brand showed nice growth with Hurley, RVCA and Fox leading the way.

Starting in mid-July, we ran our annual guest loyalty promotion, which resulted in another strong finish to the quarter. This event not only rewards our loyal guests with special pricing during the event, but also encourages them to shop fall earlier.

In addition, although we've carried youth product for many years, we started testing the concept of youth-only stores during the quarter with opening of 2 pop-up locations in Idaho. Although we are still early in the tests, we're pleased with the positive response to the product and the experience.

We'll continue to monitor the performance of these locations throughout back-to-school and holiday before determining if this is the long-term strategy for our business. .

Now turning to results on a combined basis. Accessory sales for the fiscal quarter were up approximately 1.5% against the prior year of fiscal quarter, while footwear sales were up about 18%. These 2 categories accounted for approximately 9.5% and 7.5%, respectively, of second quarter net sales.

This compares to 9.5% and 6.5% for each in the second quarter fiscal 2018. Average accessory price points were down approximately 13%, and average footwear price points were down about 4%.

Again, on a combined basis for the quarter, denim accounted for approximately 33% of sales, and tops accounted for approximately 34%, which compares to 32.5% and 34.5% for each in the second quarter of fiscal 2018. Our private-label business continues to grow and represented approximately 33% of our sales for the quarter.

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

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

To follow-up on your disclosure last call about 50% of your sourcing coming from China, would you break down for us what portion of your Chinese product is impacted by List 4 tariffs in September? And what percentage comes later in December? Additionally, is there any update around how you're looking to mitigate that impact? Whether from price increases or changing your mix or shifting vendors?.

Well, we still see the tariffs having a very small effect on our business throughout this year.

We work substantially with our branded vendors that we're not seeing -- that affect us, and we've also worked with a number of our makers with -- over a long period of time, and we're seeing very few situations that will have an effect on this year as we confirm prices -- landed prices early on before placing orders.

And I think we have a good handle on that throughout this year. .

Right. And if I could ask a follow-up question.

Would you dig into the drivers of the steeper decline in merchandise margin in the quarter, which was a bit unusual for you? And provide a few comments around where you might expect it to trend into back-to-school and holiday with the mall having been so promotional?.

Well, I think we were going against some strong margin numbers. I think our margin numbers are still -- have quality to them. And as Tom mentioned in the narrative, the -- our markdowns are down, and we are liking the look of our product coming in, inventory's up 1% total.

So we're comfortable with our situation as we go into the second half of the year. .

[Operator Instructions] John Deysher, your line is open. .

Looks like you're making solid progress.

I have a basic question, which is why -- on the denim side, why is the women's denim under more price pressure than the men's denim? What dynamic is driving that?.

I would say it's mostly a fashion change over the years. As you remember, several years ago, we sold a lot of denim over $100 substantially in the $120 and higher.

And as those -- the environment changed on the brands and such, even though we'll still have some brands that we continue, that we have good niche selling on in different parts of our country, the majority of our new brands and our private label are in the $80 range and below. And so that's a substantial change in the retail prices.

That's just kind of the way the trend has gone and what makes sense in the market. But we're happy with our selection, the new fits and the response to our new styles as we go forward.

So as usual, we're looking into the market and trying to deliver what our guests are looking for and what they will love and have as their favorite fits as we go forward. And so it's just a different brand and price point that is working in the market right now. .

Right.

I get that from several years ago, but more specifically, quarter-to-date, I mean why is ladies denim down 7% and 4% in the most recent quarter where as men's ASP on jeans is actually up 5%? Is there any specific thing that can explain that?.

Well, in the men's the vendors have remained more consistent. There's been less change in the brands and the price points we're selling. Just the consistency there. So we've held up. I think last year there was a small drop in some of the retails, I don't remember the percent now. But that's kind of leveled out.

And I would guess we would see the men's continuing to be consistent with past retails as we go forward. The ladies for the second half, it's still possible there could be a low single-digit decline at retail prices. But as I say, we think our ladies denim presentation is working well and feel good about it as we go forward. .

[Operator Instructions] There are no questions at this time. .

If there are no questions, we can wrap up the call. So hope everyone enjoys the rest of the day and has a wonderful weekend. And thanks for joining us today. .

Then ladies and gentlemen, this conference will be available for replay after 11:00 a.m. Central time today running through September 6 at midnight. You may access the AT&T replay system by dialing the numbers 1 (800) 475-6701 or 1 (320) 365-3844 and entering the access code, 470702. That does conclude our conference for today.

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