Ladies and gentlemen, thank you for standing by, and welcome to the Buckle's third quarter earnings release conference call. We will begin today's call with a safe harbor statement. 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 third quarter, which ended October 31, 2020, they would like to reiterate their 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 and are subject to change based on factors which may 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 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. As a reminder, this conference is being recorded. I'd like to now turn the conference over to our host, Mr. Tom Heacock. Please go ahead, sir.

Good morning, and thank you for joining us today. Our November 20, 2020 press release reported that net income for the 13-week third quarter ended October 31, 2020, was $41.6 million or $0.85 per share on a diluted basis compared with net income of $26 million or $0.53 per share on a diluted basis for the prior year 13-week third quarter ended November 2, 2019. Year-to-date net income for the 39 week period ended October 31, 2020, was $64.5 million or $1.32 per share on a diluted basis compared to net income of $57.5 million or $1.18 per share on a diluted basis for the prior year, 39 week period ended November 2, 2019. The net sales for the 13-week third quarter increased 12% to $251 million compared to net sales of $224.1 million for the prior year 13-week third quarter. Comparable store sales for the quarter increased 12.4% in comparison to the same 13-week period in the prior year, and online sales increased 72.5% to $46.4 million. Year-to-date net sales decreased 7.4% to $582.4 million for the 39-week fiscal period ended October 31, 2020, compared to net sales of $629.3 million for the prior year 39-week fiscal period ended November 2, 2019. Comparable store sales for the year-to-date period were down 7.1% in comparison to the same 39-week period in the prior year and our online sales increased 67.3% to $124.4 million. For the quarter, UPTs increased approximately 1%, the average unit retail increased approximately 3% and the average transaction value increased about 4%. Year-to-date, UPTs increased approximately 2%, the average unit retail increased approximately 2% and the average transaction value increased approximately 4%. Gross margin for the quarter was 46.6%, up 490 basis points from 41.7% in the prior year third quarter. The year-over-year increase was the result…

Thanks, Tom. I would like to start by highlighting the performance of our women's merchandise categories. Women's merchandise sales for the fiscal quarter were up approximately 12% against the prior year fiscal quarter. For both the current and prior year fiscal quarter, our women's business represented approximately 48.5% of net sales. Average denim price points increased from $73.35 in the third quarter of fiscal 2019 to $75.15 in the third quarter of fiscal 2020. And overall women's price points increased about 5.5% from $41.70 to $44.10. We are pleased to report another nice quarter for the women's business with key categories being our denims, sweaters, knit tops and footwear. [indiscernible] continued to evolve our assortment building upon key exclusive fits and broadening our offering in rises and bottom openings. The expansion of the flare bottom opening within our mix has been a nice addition and well received by our guests and teammates. In denim, the footprint of our private label brands continues to build. As back-to-school is delayed for a large part of the country, the later traffic along with the delays in guest readiness for fall apparel aligned well with our release of key fall categories. Soft fabrics, ease of wear fashion knits, graphic tees and statement sweaters drove top purchases to pair well with our denim. Our casual footwear assortment continued to drive our shoe business as we expanded our exclusive selection and added several new silhouettes into our mix. For industries, fragrance, fashion hats and branded handbags helped drive dollars in the department. In addition, our youth business has gained momentum as we evolve our Mini Me assortment offering smaller versions of adult key items. For youth, denim and knit tops continue to drive the majority of our business. We continue to manage our inventory closely, allowing us to react in season to bestsellers, offer consistent flow of newness to our guests and respond opportunities in the market. As we move into holiday, the team continues to do an amazing job reacting to changes in the market and working alongside our vendors to build and deliver unique and exciting products to fit for our guests. 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 category.

Thanks, Kelli. Men's Merchandise sales for the fiscal quarter were up 13% in comparison to the prior year fiscal quarter. For both the current and prior year fiscal quarter, our men's business represented approximately 51.5% of net sales. Average standard price points increased from $82.95 in the third quarter of fiscal 2019 to $84.60 in the third quarter, while overall men's price points decreased slightly from $49.65 to $49.55. For Q3, denim, knits, accessories, footwear and youth led the way with strong increases. Markdown inventory is down substantially and overall inventory is in good balance. Guests and teammates have responded well to our new and unique product for fall, both graphic T-shirts and hats have been especially good as we've expanded our brand selection along with 2 of our private brands in Veece and Departwest. Denim continues to grow with our private brands, providing the majority of our business. Footwear also had good success with our casual shoes leading the way, although I wanted to comment about our new BKE boots, along with our private Outpost boots brand have been well received. It's exciting to see the collective efforts of all our Buckle teams come together for such a great quarter. I also wanted to thank our brand and sourcing partners to help us deliver great product quickly to floors as our guests came back strongly from the closings. These relationships allowed us to add some new products towards the end of Q3 with more to be added for November and December. Now turning to results on a combined basis. Accessory sales for the fiscal quarter were up approximately 15% against the prior year fiscal quarter and footwear sales were up about 36%. These 2 categories accounted for approximately 8.5% and 10%, respectively, of third quarter net sales, which compares to 8.5% and 8% for each in the third quarter of fiscal 2019. Average accessory price points were up approximately 5.5%, while average footwear price points were down about 0.5%. Again, on a combined basis for the quarter, denim accounted for approximately 42% of sales and tops were approximately 32%, that compares to 42.5% and 34% for each in the third quarter of fiscal 2019. For the quarter, our private label business represented approximately 39% of sales. And with that, we welcome your questions. Thank you for being part of the call.

[Operator Instructions] . We do have a question from the line of Ujjval Dave with Ujjval Investments.

I have a question on how Buckle managed the impressive same-store sales growth lately. Buckle has been struggling with negative same-store sales since beginning of 2014. Every year since then, it has reported negative growth rate all the way through mid-July 2019. If we ignore this, that comes from last -- the 3 months of lockdown, for last 12 months or so, Buckle has started reporting impressive comp growth. The pandemic should be one of the toughest period for mall-based apparel retailers. However, manage -- Buckle managed to outshine the peers, could you provide us the insight to what has changed with Buckle during last 12 to 14 months to report this positive turnaround? I see that women's merchandise has started showing positive comp growth, but is there anything else that we are missing out? Any insight would be helpful.

This is Dennis. Well, I think the part of your question, we finished the last third and fourth quarter last year pretty well, solid finish to our year. In the first 5 or 6 weeks of this year, we were -- had another good start. And I think it goes back to continued improvement among all our different departments. Our sales team has been doing great and has improved the payroll. The product has been excellent. And some of those negative sales growth over those years, where a lot of it was branded denim that we have talked about in the past of being very high price points. And as we evolve to other brands and our own private brands, the retail difference was substantial and caused a lot of the depression in the sales. And since then, we've kind of leveled that out. The denim prices were actually up a little bit this quarter. And we're having very good success and sell-through on both our men's and women's denim. And so on affecting the sales in the past, that was probably the largest issue. We've also improved our e-commence site, the marketing of it. We -- our teams have done a very good job of giving the guest several ways to shop. And -- so how they want to shop is, they pretty much can. We've improved our -- fourth quarter last year, we started doing ship from store, which expanded our inventory. We kind of worked and tested on that. And then through this year, we've expanded that to cover most of our categories, and that's been a plus for our e-commerce business. And so we have a lot of good things that the teams have been working on and improving. And our specialty store approach in the stores has been great. We've received a lot of new guests that hadn't shopped us before this year during the change of what's going on. There are several loyal guests that used to shop us that are now back and enjoying the experience and naturally, our loyal guests continue to return and responded very favorable to our product for both men's and women's. Hopefully, that answers your question.

And our next question comes from the line of [ Alan Glynn ] with Concord in Maine.

Congratulations on the quarter. I'd like to know -- I noticed the inventory was down about $20 million or so this quarter year-over-year. And I wondered if you were having any difficulties sourcing inventory due to the challenges in the economy internationally and domestically?

Well, there's always some challenges, but I think the teams are doing pretty well. There was some product that just the vendors did not make in the early part of the year. There was some orders that we canceled but responding back a lot of our vendors, we're having nice receipts come in now this month. It's difficult to react in time for October with the changes. So we have a nice flow of product coming in over the next 6 to 8 weeks. So we think we'll be in good shape on that.

[Operator Instructions] And we do have a question from the line of Ujjval Dave from Ujjval Investments.

I noticed that Buckle has been spending on digital marketing and Google Ads, Facebook, Instagram, Pinterest, et cetera. Do you have any granular way to measure the effectiveness of your marketing dollars? And which channel has proven to be most effective and which hasn't worked out too well?

I don't have any specifics on the measurement of the marketing. We have a new marketing manager that's been with us not quite 1.5 years now. And we've been very excited about the product they've been putting out and the new ways they've been getting Buckle out to the public. And they feel good and the results we're seeing has been very positive on that. Tom, do you have any metrics that you know of?

I don't think there's no one specific metric. And I think as a team, we're continually adjusting and adapting to what's working well and then looking at traffic drivers in response, both in-store and online. I mean as you walk through each of the different buckets of marketing, and we've seen positive response to all of them, which makes it really attractive. I mean, e-mail has performed well. social media, as Dennis mentioned, I mean, we've done a nice job and that's performed well. Search marketing has been performed well. And so testing a lot of new things, but always trying and have lots of things that are working well and driving traffic both to the side and getting guests into the stores.

And our next question comes from the line of John Braatz with Kansas City Capital.

Dennis, a question for you on the Buckle youth stores. You have 3 Buckle youth stores now and from what I've gathered, they're doing very well. And maybe there's a void in the marketplace with all the retail disruption and that you're able to capitalize on it. I guess my question is, what's your intention with Buckle youth stores on a brick-and-mortar basis. Is this something that you want to expand? And eventually, and Kelli mentioned it, she called out Buckle -- the youth revenues have been pretty good. Somewhere down the road, do you envision a men's category, a women's category and breaking out the youth business like you do in men's and women's? Anyway, any thoughts on the Buckle youth that you can give us that would be great.

Okay. Thanks, John. Yes, we've been pleased with our youth business. We had 3 established markets that we've opened youth stores in. And we're still -- we know it can be a challenging business, but we're very pleased with our results and we'll continue to evaluate -- if we're going to add stores in the future or not. But if we do, it would be in a very small basis, at least at this point. And it becomes more important, we will be glad to break out the youth boys & girls business.

Sure. Dennis, had it not been for the pandemic, would you have opened some youth stores this year beyond the 3? Do you think?

No. This is all planned. And the first half of the year can be challenging and for us at least in youth. And so if we open a store, we would plan for probably a back-to-school type opening, which we planned early last year, and so that had nothing to do with our plans.

Okay. All right. Tom, one question. A number of companies have seen there -- have gotten favorable terms from some of their vendors. Have you gotten some favorable terms from your vendors? And do you think that will reverse -- if you did, will that reverse in next year?

John, I might take that one as well. We had lease deferrals, and we are working with our renewals and such. But we did not have like any onetime cost savings or such that would be different this year from going forward. I mean, so we just -- we'll be working on negotiating leases and other terms with our vendors as we go forward. We had some deferrals of payment to -- that we set up early on, just not knowing what would happen, but that's all working out fine.

John, was your question about leases or merchandise vendors?

Working capital investment that you might have to make next year.

We have extended terms generally with a lot of our merchandise vendors as well. So payables is up a little bit and some of that's extension of terms and a little bit longer to pay. And most of that again, was in reaction in the March time frame and has stayed in place.

And our next question comes from the line of Steve Marotta with CL King & Associates.

Did the third quarter gross margin, merchandise margin, in particular, benefit at all from the inventory write-downs that were taken in the first quarter?

No. There was not -- I mean, it was strong sell through. The merchandise margins were up 160 basis points in Q3 and up strongly even year-to-date, I think, at 130 and a lot of that's just -- I mean, reduced markdown inventory in general, stronger sell-through of regular priced product, but not any reversal of write-downs or those kinds of things.

Okay. And also, can you talk a little bit about the online capabilities that you anticipate will be added in the next, say, 3 to 9 months?

Dennis touched on it a little bit. And we really feel like this was a big year for us, and have come a long way. That's been a priority to grow our online business, both from a marketing and site -- guest experience on the site and making that better, but then also our capabilities. We started with ship from store, so again really expanded that inventory and being able to ship those orders from the store to get those to the guests quicker or again, just give them access to a broader selection of inventory. So we tested that last year in holiday with a limited SKUs and expanded it starting this year and have continued to expand it and built upon that through this year. Just last month, we added buy online, pickup-in-store capability and buy online get-it-today capability. So again, exposing that store inventory to guests, giving them that selection that they can shop at their local store, they can buy the product, if it's available, they can pick it up that day. So again, it goes -- really goes back to given the guest choice, given them access to all of the inventory that we have in the company and giving them choices as far as how they get it, whether it gets shipped to their home, whether they could pick it up in store or how they want to get it. So we made a lot of progress. But the buy online get-it-today is new. So just in the last month, we've launched it, have seen a nice response to it. And I think this will continue to evolve, but feel like a lot of the foundational pieces are there now. So it will be smaller changes going forward.

Regarding the pickup-in-store, can the customer know at the moment that they order that it is available in their nearby store? And also how many stores have that capability right now?

Yes. They -- I mean they have the ability to toggle and search their -- and shop at their local store. And so they'll know that, that product is available. They'll get a confirmation from the store and get a confirmation that it's ready for pickup, and they can go to the store and pick it up. And that is available in all stores.

And our next comment comes to the line of [ Matt Siegrist ] with [indiscernible] Asset Management.

First of all, congratulations on your impressive quarter. You're currently having a higher than usual cash position. And I think this is prudent. But here in Europe, we thought we had COVID under control and then it broke out again in the second wave. So my question is, how do you think about capital management, and particularly dividend going forward?

We had -- again, in March, had deferred our dividend or stopped our dividend for a period of time. We were pleased to -- with trends and strong cash position reinstate our dividend during the quarter at the rate it was. Our approach has always been to manage conservatively to have a strong balance sheet. We like the flexibility that gives us and certainly operating in a pandemic with all the uncertainty that brings, that's certainly a benefit to play from a position of strength. Dividends and capital allocation is part of the Board's normal review at their Board meeting that's coming up in December, they'll review that, but no plans now, but we have reinstated our dividend.

And our next question comes from the line of Kyle Kavanaugh with Palisade Capital.

I had a question about -- can you give out your -- the percentage of sales that are online? Is that something you're willing to provide?

Yes. We did break out and disclosed it in the press release, the dollar value of online sales. And so I think for the quarter, it was 18.5%, and I don't remember the exact number for the year-to-date period, but it was over 20%. Which both of those are up pretty significantly from where they were a year ago, which it was closer to 12.5% for both the quarter and year-to-date a year ago.

Okay. Great. And then, obviously, this year is a tremendous year of change, and the -- you have most -- all of your stores are in malls. And I just wanted to understand from a strategic standpoint, how you're thinking about mall positioning versus online sales? Are there any malls that are -- that you're looking at that necessitates some sort of like changes within their part or do the malls have issues versus the stores and things like that. So as we come out of this, I mean, the consensus is, obviously, that the mall is even weaker position than it was going in. So with the significant number of stores that you have mall based, just wanted to understand how you guys are adapting to the environment? And in whatever strategic changes, I'm sure you've talked about it a lot. Just trying to understand what those conversations have entailed.

Kyle. We have been reviewing, as we always do each of our store by location and we've estimated that over the next 18 months, we will have maybe close to 20 locations that we will move. The majority of those would be probably in malls right now that we would move to lifestyle or strip center type locations. And we feel like we've got a good start on that. There's still several malls that maybe -- would be classified in the industry as a C mall, but still might be the best location or set up for that particular community. So we review each one on its own merits, and I feel we got a good handle on that. And certainly working we've done this already in a number of locations that has worked out very well. And so we continue that process and feel good about what we have going on.

So just so I understand. So like from my point of view, and Wall Street's point of view, the assumption is like C malls are pretty much going away. So you're saying kind of, in your case, there are certain C malls that are viable longer-term that -- not only is the store economic, the mall itself will be able to survive?

Yes, at least for the near term, and like I said, we have a lot of short-term leases. And we would see those particular spots being the best location in that community at this time. And as I mentioned, every year, we look at those, and if we see something changing or a better situation opening up, we'll be ready to move.

Got you. And then I kind of misunderstood that previous question, you were talking about deferrals. Were you talking about vendor deferrals? And do you currently have rent deferrals in your stores?

I think that was -- what Dennis was referring to was rent deferrals. There are a couple of deferred items. There are some payroll tax deferrals that are significantly smaller than the rent deferrals that are on the balance sheet that we took advantage of. But then for a certain number of our landlords in April and May, I think, if I remember correctly, we did defer that rent, and we'll pay that back. Some of it before the end of this year and some of it in the next year.

Okay. How many stores are in deferral?

I don't know the number of stores exactly. The total dollar amount is less than $10 million, but close to $10 million in deferrals.

Okay. So you're just going to -- you're going to catch up, you're not going to extend the lease by the deferral amount, you're just going to catch up by year-end?

Correct. It was essentially just a payment holiday that we didn't pay rent for those months. And again, we'll pay it back later, and that's really just a cash and a balance sheet item had no impact on lease expense, both for those periods or for the rest of the year.

And just one last question about online engagement. You guys have ramped up your online significantly this year. I think that's been a major positive and -- just wanted to understand your learnings? Or I guess, somebody asked about your customer engagement on online advertising and stuff. So maybe just kind of like maybe your top 3 strategic priorities on developing the online again? Kind of how you view that strategy from your point of view, what you put in the maybe top 1 or 2 priorities?

I think -- I mean, I think we mentioned it earlier, it's really about choice and giving our guest choice so and making it a fantastic experience online, just like it is in the stores. I think we've come a long ways in terms of choice and giving them choice and access to all of our inventory, broader selection. I mean, making sure, and as we expand the inventory selection, we're reducing stock-outs online. So that's been a big driver giving our guests choice about how they want to deliver to them. I think the next piece in what we want to continue to do our teammates in the stores are an important differentiator and a big driver of our business and the relationships that they have with guests. So probably our next strategic initiative would be to utilize teams in the stores, utilize our managers in the stores, and have them interact with guests and drive traffic again both to the stores and in-store business, but also online traffic and online sales.

And our next question comes from the line of [ Alan Glynn ] with Concord in Maine.

My question was just answered regarding e-commerce CapEx. Thanks.

And our next question comes from the line of Ujjval Dave with Ujjval Investments.

I have a question on the capital allocation. The Buckle Board has been providing special dividend for past few years. I don't see it using cash and buying back its own shares. There's a small $3 million buyback in 2016, but nothing since then. I think at least 3 of you are on the Board. So wondering what rationale Board uses behind deciding on special dividend or buybacks?

Well, I think we just review that at each board meeting of what's going on, how we look at the future and several points of discussion to make those decisions. I think we did have one buyback since '16, right?

We did earlier this year, right in March. We started the buyback and saw the stock -- I mean, attractively priced and started buying back. And then as stores shut down, we put that on hold.

I see. And is relatively smaller float is one of the factors in not going for aggressive buyback?

Yes, you are correct that has always been a part of the discussion.

We do have another question from the line of Jon Braatz with Kansas City Capital.

Dennis, we're seeing a lot of new restrictions emerge, state and local restrictions emerge over the last couple of weeks. Are any our stores being affected, their operating hours being affected at this point?

At this moment, we have 5 stores in New Mexico that are closed for traffic. They can do curbside, which is not a real big part of our business, but those are the -- and there's reduced occupancy levels for the stores right now, but that's kind of where it's at.

Okay. Okay. Nothing from California, given the new things from the governor?

We -- nothing new.

We do have a question from the line of Kyle Kavanaugh with Palisade Capital.

The prior question was the question I was going to ask. So thank you.

And at this time, we have no further questions.

If there are no questions, we'll wrap up the call and thank everyone for your participation and wish you a wonderful holiday next week.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive teleconferencing services. You may now disconnect.