The Buckle, Inc. — FY2012 Form 10-K
Period clarification: The filing is for the 53-week fiscal year ended February 2, 2013—not 2011 Q4 as indicated in the request metadata. Comparisons are principally to the 52-week fiscal year ended January 28, 2012.
Business context
Buckle operates specialty apparel, footwear, and accessories stores serving fashion-conscious young men and women. It had 440 stores in 43 states at fiscal year-end. Denim represented 46.4% of sales and tops 30.9%; brand-name merchandise accounted for approximately 66% of sales.
Financial performance and liquidity
- Sales: $1.124 billion, up 5.7%. Comparable-store sales rose 2.1%; online sales increased 8.4% to $84.5 million. The extra fiscal week contributed an estimated $16.1 million.
- Profitability: Gross profit was $499.3 million, or 44.4% of sales, versus 44.1%. Operating income was $258.2 million (22.9% margin), up 9.2%. Net income was $164.3 million, up 8.5%; diluted EPS was $3.44 versus $3.20.
- Cash flow: Operating cash flow was $220.9 million, compared with $209.3 million. Property and equipment purchases were $30.3 million. Cash and cash equivalents fell to $117.6 million from $166.5 million.
- Liquidity and debt: Working capital was $147.9 million; total cash and investments were $179.8 million. No bank borrowings were outstanding. The company had a $25 million unsecured credit line and $3.2 million of letters of credit.
- Capital returns: Cash dividends totaled $254.6 million, including a $4.50-per-share special dividend; regular quarterly dividends were $0.20 per share. No shares were repurchased during the year.
Changes versus prior year
- Sales growth slowed from 11.9% in FY2011 to 5.7% in FY2012; comparable-store growth eased from 8.4% to 2.1%. FY2012 comparable-store results reflected a 4.8% increase in average selling price, partly offset by fewer units per transaction and fewer transactions.
- Gross margin improved 0.3 percentage point, supported by better merchandise margins and lower incentive-bonus accruals. Operating margin rose from 22.2% to 22.9%.
- Online sales growth decelerated to 8.4% from 25.0%. Store count increased from 431 to 440 after 10 openings and one closure.
- Cash and cash equivalents declined by $48.9 million as operating cash generation was more than offset by financing outflows, primarily dividends.
Outlook, risks, and unusual items
- Management expected approximately 13 new stores and seven full remodels in fiscal 2013, with capital spending of $34–$38 million. It believed cash, investments, and operating cash flow would fund anticipated needs for several years and planned to continue regular quarterly dividends.
- Key risks include fashion and merchandising misjudgments, volatile comparable sales and consumer spending, intense competition, execution of store expansion, reliance on key personnel, and dependence on a single distribution center and complex information systems.
- Miss Me/Rock Revival represented 23.5% of sales and Koos Manufacturing 12.1%; the company has no long-term or exclusive merchandise-supply contracts.
- Auction-rate and preferred securities had a reported fair value of $10.9 million, including $1.5 million of temporary impairment and $2.7 million of other-than-temporary impairment. Failed auctions constrain liquidity; management did not expect them to impair its ability to fund operations.
- Future minimum operating lease commitments totaled $349.6 million. The company reported no litigation expected to have a material effect. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Separate underlying comparable-store and online trends from the effect of the extra fiscal week and new-store contributions.
- Assess the sustainability of margin gains, particularly merchandise margins, selling-cost leverage, and the higher markdown/obsolescence reserve ($6.3 million versus $4.9 million).
- Review cash generation against the $254.6 million dividend outflow, planned capital expenditures, and ongoing lease commitments.
- Track the valuation, recoverability, and liquidity of auction-rate securities and preferred securities, including the Level 3 valuation assumptions.
- Monitor supplier concentration and the company’s ability to maintain fashionable merchandise and execute planned store growth.