The Buckle, Inc. — Form 10-Q Summary
Period: The supplied filing covers the 13 and 39 weeks ended October 28, 2017, compared with the periods ended October 29, 2016. This differs from the request metadata identifying 2016 Q3. The Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories; it had 461 stores in 44 states at quarter-end.
Financial performance
| Metric | 13 weeks ended Oct. 28, 2017 | Prior-year period | 39 weeks ended Oct. 28, 2017 | Prior-year period |
|---|---|---|---|---|
| Net sales | $224.3 million | $239.2 million | $632.2 million | $694.9 million |
| Gross profit | $90.9 million | $96.9 million | $246.8 million | $271.5 million |
| Operating income | $30.9 million | $36.8 million | $73.4 million | $97.3 million |
| Net income | $19.9 million | $23.4 million | $47.7 million | $62.0 million |
| Diluted EPS | $0.41 | $0.48 | $0.99 | $1.28 |
Quarterly gross margin was 40.5%, unchanged year over year; operating margin fell to 13.8% from 15.4%, and net margin to 8.9% from 9.8%. For the 39-week period, gross margin was 39.0% versus 39.1%, operating margin 11.6% versus 14.0%, and net margin 7.5% versus 8.9%.
For the 39 weeks, operating cash flow was $58.6 million (prior year $64.1 million); capital expenditures were $11.0 million versus $26.7 million. Cash and cash equivalents were $205.2 million, short-term investments $52.2 million, and long-term investments $18.4 million. Working capital was $313.7 million. The company had no bank borrowings; its unsecured $25 million credit line, expiring July 31, 2019, was undrawn.
Changes and management commentary
- Quarterly sales declined 6.2%; comparable sales fell 5.9%. For the 39 weeks, sales declined 9.0% and comparable sales fell 8.8%.
- Management attributed comparable-sales weakness primarily to fewer transactions and lower average retail prices per item, partly offset by more units per transaction. Average price per item declined 6.2% in the quarter and 6.4% year to date.
- Online sales decreased 1.2% to $23.4 million in the quarter and 4.3% to $64.7 million year to date. Year-to-date sales per square foot fell 9.5% to $239.77.
- Gross profit dollars declined with sales. In the quarter, improved merchandise margins and the phaseout of the former loyalty program were offset by deleveraged occupancy, buying, and distribution costs. Selling expenses were nearly flat in dollars but rose as a share of sales; higher store payroll and online fulfillment and marketing costs were cited.
- Management estimated fiscal 2017 capital expenditures of $13–$17 million and expected one additional new-store project during the remainder of the year. It said cash, investments, and operating cash flow should cover anticipated needs for several years; no merger or acquisition was planned.
Risks, contingencies, and notable items
- Data security incident: Criminal access to certain guest credit-card information at some stores occurred between October 28, 2016 and April 14, 2017. The company said it removed malicious code and implemented security enhancements. The investigation continued, and potential assessments, penalties, or liabilities could not be reasonably estimated.
- Lease commitments: Operating lease obligations totaled $330.5 million, including $67.0 million due within one year. Total disclosed contractual obligations were $359.0 million.
- Seasonality and retail risks: Holiday and back-to-school periods historically represented about 35% of annual sales. Management cited demand, fashion trends, competition, product mix, and economic conditions as factors that could affect results and liquidity.
- Investments: Auction-rate securities were carried at $1.6 million against $1.7 million par value, with a temporary impairment. Management believed recovery was possible but noted that continued market conditions could cause further impairment.
- The company adopted inventory-measurement and share-based-compensation accounting updates without material impact. It anticipated that the new revenue standard would affect certain revenue classifications and timing, but did not expect a material effect on results or financial position. The upcoming lease standard was expected to significantly increase reported assets and liabilities.
Most important facts for investors to verify
- Confirm the intended reporting period: the supplied 10-Q is for Q3 fiscal 2017, not Q3 2016.
- Track comparable sales, transaction counts, average selling prices, and online sales for evidence of a demand or pricing recovery.
- Monitor merchandise margins and occupancy and selling costs, which contributed to lower operating margins.
- Follow updates on the payment-card incident and any resulting assessments, litigation, or other liabilities.
- Assess cash generation against dividends, capital spending, and substantial operating-lease commitments.