The Buckle, Inc. ($BKE)

Good morning. Thank you for standing by, and welcome to Buckle's First Quarter Earnings Release Webcast. [Operator Instructions] 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; Adam Akerson, Vice President of Finance and Corporate Controller; and Brady Fritz, Senior Vice President, General Counsel and Corporate Secretary. Before beginning, the company would like to reiterate its policy of not providing future sales or earnings guidance. All forward-looking statements made on the call are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to risks and uncertainties described in the company's SEC filings. The company undertakes no obligation to publicly update or revise these statements, except as required by law. 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 cause should not be relied upon as the information may be inaccurate. As a reminder, today's webcast is being recorded. And I'd now like to turn the conference over to your host, Tom Heacock.

Good morning, and thanks for joining us this morning. Our May 29, 2026 press release reported that net income for the 13-week first quarter, which ended May 2, 2026, was $46.9 million or $0.92 per share on a diluted basis, which compares to net income of $35.2 million or $0.70 per share on a diluted basis for the prior year 13-week first quarter, which ended May 3, 2025. Net sales for the quarter increased 6.1% to $288.7 million compared to net sales of $272.1 million for the prior year. Comparable store sales for the quarter increased 5.1% in comparison to the same 13-week period in the prior year, and our online sales increased 2.8% to $47.7 million. For the quarter, UPTs decreased approximately 1%, the average unit retail increased approximately 4.5%, and the average transaction value increased about 3.5%. Gross margin for the quarter was 46.2%, a decrease of 50 basis points from 46.7% in the first quarter of 2025 with the decrease being the result of a 10 basis point reduction in merchandise margins, along with a 40 basis point impact from increased buying distribution and occupancy expenses. Selling, general and administrative expenses for the quarter were 25.6% of net sales compared to 30.7% for the first quarter of 2025. The first quarter decrease was due to a 660 basis point impact from the recognition of a $19.1 million interchange fee litigation settlement during the first quarter of 2026, as disclosed in our 2025 Form 10-K. Absent the impact of this settlement, SG&A expenses were up 150 basis points for the quarter, which was driven by a 100 basis point increase in incentive and equity compensation accruals, a 30 basis point increase in store-related compensation expense and a 20 basis point increase in other SG&A expense categories. As a result, our operating margin for the quarter was 20.6% compared to 16% for the first quarter of fiscal 2025. Income tax expense as a percentage of pretax net income for both the current and prior year first quarter was 24.5%. Our press release also included a balance sheet as of May 2, 2026, which included the following: inventory of $150.2 million which was up 13.5% from the same time a year ago and $323.8 million in total cash and investments. We ended the quarter with $169 million in fixed assets net of accumulated depreciation. Our capital expenditures for the quarter were $14.7 million, and depreciation expense was $6.5 million. Capital spending for the quarter included $13.5 million for new store construction, store remodels and technology upgrades and $1.2 million for capital spending at the corporate headquarters and distribution center. During the quarter, we opened 3 new stores, completed 5 full store remodels, 4 of which were relocations into new outdoor shopping centers and closed 1 store. Following the end of the quarter, we have opened 3 additional new stores, completed 2 more full-store remodels and closed 1 store so far during fiscal May, bringing our year-to-date count to 6 new stores, 7 full store remodels and 2 store closures. For the remainder of the year, we anticipate opening an additional 9 new stores and completing an additional 7 full remodeling projects. Buckle ended the quarter with 442 retail stores in 42 states compared to 439 stores in 42 states as of the end of the first quarter of fiscal 2025. And now I'd like to turn the call over to Adam Akerson, Vice President of Finance.

Thanks, Tom, and good morning. Our women's business carried a strong momentum into the first quarter of 2026, delivering another double-digit increase against the prior year and building on the consistent growth we saw throughout 2025. For the quarter, women's merchandise sales were up 11%, which was on top of a 10.5% increase in Q1 2025 and represented approximately 52% of sales compared to 50% last year. . Our women's denim category continued to be the leading contributor to revenue growth with denim sales up 8% year-over-year, and average denim price points increased from $84.85 in the first quarter of fiscal 2025 to $92 in the first quarter of fiscal '26. In addition to the strong denim performance, we saw great growth in our alternative pant collection with strong trend adoption and expanded brand offerings. Our women's top business remains strong, highlighted by growing private label penetration and a favorable response in newness and color selections. We also had a great early response to our denim shorts business as we move into the spring and summer selling seasons. On the men's side, merchandise sales increased 2% against the prior year, representing approximately 48% of total sales compared to 50% last year. Our men's business was down about -- our men's denim business was down about 1.5%, but we continue to be pleased to see growth across our private brands, which were up 0.5% and represented over 75% of the men's denim business. Average denim price points decreased from $89.70 in the first quarter of fiscal '25 to $89.10 in the first quarter of fiscal '26. For the quarter, our men's tops business was a meaningful contributor to growth, led by strong performance in teas and polos along with solid momentum in our short sleep button fronts across a range of styles in both solids and prints. Our shorts business also performed well, with strength in both denim and athletic styles. On a combined basis, accessory sales for the quarter increased approximately 6% against the prior year and footwear sales increased about 0.5%. These 2 categories accounted for approximately 11% and 5%, respectively, of first quarter net sales, which compares to 11% and 5.5% for each in the first quarter of fiscal 2025. For the quarter, average accessory price points were up approximately 5%, and average footwear price points were up 9%. Our kids business turned in another standout performance in the first quarter of '26, with sales up approximately 16% versus the prior year. This category continues to represent a growth opportunity as we build the business and reach new guests earlier in their shopping journey. For the quarter, denim accounted for approximately 42.5% of sales and tops accounted for approximately 28%, which compares to 43.5% and 27% for each in the first quarter of fiscal '25. Our private label business for the quarter represented 48% of sales versus 47.5% in the first quarter of fiscal '25. And with that, we welcome your questions.

[Operator Instructions] Our first question is from Mauricio.

Yes. It's Mauricio Serna from UBS Research. Just wanted to ask on the margins. Could you unpack a little bit on the gross margin side, what cost the merchandise margin contraction. And then on the buying occupancy and distribution, the pressure from 40 basis points, where is that -- like what is that attributed to within those 3 buckets?

On the merchant side, nice margins, I will start with that, Mauricio, thank you for the question. I think we feel really strong about being down 10 basis points. Remember, from a year ago, we saw a particular strength a year ago and really strong merchandise margins and we're at record high levels. So we still feel like we're maintaining a full strong regular price business and pleased with margins were where they are. . In terms of what caused the decrease, probably a little bit of cost pressure from tariffs. And then by category, men's denim was the category that was down. But on the whole, really pleased with where margins are again on top of record levels a year ago. On the gross margin side bring now between buying distribution and occupancy. Occupancy is really where the growth is. Total occupancy expense for the quarter was up 6.6% and really, the driver of that is rent and depreciation related to the store projects that we've been doing for the last several years. A year ago, our projects were weighted towards the last 3 quarters of the year that's a little bit different this year. We have a pretty heavy schedule of projects for the first part of the year, opening both in Q1 and then even so far in May. So that's pushing that rent a little bit higher and also depreciation, and that's why that leverage point is higher.

Can you still hear me? I don't know it anymore.

We can hear you.

Great No, that's very helpful. Just a quick follow-up. Maybe could you on the margin side, just given all these headlines that we've been hearing about fuel costs, with the Middle East situation. I just want to understand like what's your strategy in terms of fuel cost? Do you hedge that? Do you have lock agreements with logistics providers? And how should we think about that fuel cost impact on your inbound outbound of freight?

We do not hedge fuel costs, so there's no contracts there to do any hedging. I mean, really where we're seeing the increase is fuel surcharges, both on and inbound freight for new product and then also with our carriers outbound and e-comm. So we have seen a little bit of increase in terms of fuel surcharges on both ends, but so far, it's manageable, and it was not something that we called out during the quarter in terms of the script or impact on either gross margin or SG&A, but there are increases.

Our next question is coming from Jon Braatz.

A lot of the big box retailers have been talking about pressures, most recently because of fuel costs and so on and so forth. How are you viewing your customer at this point? Are you seeing a little bit of weakness compared to what you might have seen earlier on this year because of higher fuel costs and pressures on incomes.

Thank you, John. This is Dennis. On the pressures on the guest, we had a strong February, March and part of that was due to Easter and spring breaks, with spring breaks influence our business a fair amount. And then April was off a little. But we felt real good about the quarter. Our sell-throughs have been good. We feel really good about the inventory and our sales teams have been doing an excellent job through the first quarter. So we're looking forward to the rest of the year and think that our offerings and value that we present in the stores will be well received by our guests.

Okay. And Tom, 2 questions. The incentive comp, 100 basis points in the quarter. Is that something that we might see continue going forward. And secondly, any comments on tariff refunds.

Take the first one first. So on an incentive comp, there was a little bit of a pull forward probably into the first quarter from the normal recognition pattern. We look at, well, we think that the incentive comp will be for the full year and then accrue ratably through the year based on profitability. So with a really strong profitable quarter. In the first quarter, we did pull forward a little bit. So some of that pressure should ease as we move through the rest of the year. . And then on tariff refunds, we have filed for a refund claim in the first quarter. No funds were received during the first quarter. Actually, subsequent to the quarter, we received a small immaterial amount and are expecting more later. But so far, no impact to the financials, but we have all the claim.

There are no further questions in queue. [Operator Instructions]. Okay. It looks like there are no further questions. I will now turn the call back over to Buckle for any closing remarks.

There are no further questions, we'll wrap up the call and thank everybody for participating and enjoy the day, and have a wonderful weekend.