Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: May 1, 2010 (First Quarter of Fiscal 2010)
Business Overview: The Buckle is a retailer of medium to better-priced casual apparel, footwear, and accessories for young men and women. As of May 1, 2010, the company operated 412 stores in 41 states. During the quarter, the company opened 11 new stores and substantially remodeled 3 stores.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Sales | $214,797 | $199,697 |
| Gross Profit | $93,451 | $86,703 |
| Gross Margin % | 43.5% | 43.4% |
| Income from Operations | $46,187 | $41,728 |
| Operating Margin % | 21.5% | 20.9% |
| Net Income | $30,110 | $26,862 |
| Diluted EPS | $0.64 | $0.58 |
| Cash and Cash Equivalents | $131,417 | $170,907 |
| Short-term Investments | $22,887 | $22,687 |
| Working Capital | $176,722 | $172,779 |
| Net Cash from Operating Activities | $33,612 | $35,521 |
Debt and Liquidity: The company has no long-term debt. It maintains an unsecured line of credit of $17.5 million with Wells Fargo Bank, N.A., with no borrowings outstanding as of May 1, 2010. Total cash and investments stood at $236.1 million.
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 7.6% year-over-year. Comparable store sales rose 2.8%, driven by a 4.2% increase in average retail price and a 4.3% increase in units per transaction, partially offset by a 5.3% decrease in transaction volume.
- Online Sales: Online sales grew 24.0% to $14.4 million, contributing to overall sales growth.
- Profitability: Net income increased 12.1% to $30.1 million. Operating margin improved to 21.5% from 20.9% due to reduced markdowns and lower incentive bonus accruals.
- Other Income: Other income more than doubled to $1.8 million, primarily due to a $1.1 million sales tax refund from state economic incentive programs.
- Capital Expenditures: Investing cash outflows increased significantly due to $20.7 million spent on property and equipment (compared to $14.9 million in Q1 2009), reflecting new store construction and distribution center expansion.
Guidance, Outlook, and Risks
Capital Expenditure Outlook: Management estimates total capital expenditures for fiscal 2010 will be approximately $65 to $70 million. This includes plans to complete approximately 32 additional store projects (10 new stores and 22 remodels/relocations) for the remainder of the year.
Liquidity Outlook: The company believes existing cash, investments, and operating cash flows are sufficient to fund anticipated capital expenditures and working capital requirements for the next several years.
Risks and Contingencies:
- Auction-Rate Securities (ARS): The company holds $25.8 million (par value) in ARS and preferred securities. As of May 1, 2010, these investments carried a $1.2 million temporary impairment and a $2.7 million other-than-temporary impairment (OTTI). Liquidity is constrained due to failed auctions since 2008, though management does not anticipate a material impact on business funding.
- Economic Conditions: Continued economic uncertainty and reduced consumer confidence pose risks to discretionary spending.
- Seasonality: The business is highly seasonal, with the holiday and back-to-school seasons historically accounting for approximately 35-38% of annual net sales.
Key Facts for Investor Verification
- ARS Valuation: Verify the status of the $25.8 million investment in auction-rate securities and preferred stock, specifically the $3.9 million total impairment and the company's ability to liquidate these assets at par value.
- Comparable Store Sales Drivers: Confirm the sustainability of the 4.2% price increase and 4.3% units-per-transaction increase given the 5.3% drop in transaction volume.
- Capital Spending Execution: Monitor the execution of the $65-$70 million capital expenditure plan, particularly the new distribution center in Kearney, Nebraska.
- Inventory Levels: Review inventory turnover and markdown reserves ($6.0 million as of May 1, 2010) to ensure alignment with sales trends.