Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Thirteen and thirty-nine weeks ended November 1, 2003.
Business Overview: Retailer of medium to better-priced casual apparel, footwear, and accessories for young men and women. As of November 1, 2003, the company operated 319 stores in 38 states.
Key Financial Metrics
| Metric | 13 Weeks Ended Nov 1, 2003 | 39 Weeks Ended Nov 1, 2003 |
|---|---|---|
| Net Sales | $121.3 million | $288.7 million |
| Gross Profit | $43.6 million (36.0% margin) | $91.1 million (31.6% margin) |
| Operating Income | $18.5 million (15.2% margin) | $26.8 million (9.3% margin) |
| Net Income | $12.2 million | $18.8 million |
| Diluted EPS | $0.56 | $0.87 |
| Cash from Operations | N/A | $9.5 million |
| Cash & Equivalents | $87.3 million (as of Nov 1, 2003) | |
| Working Capital | $159.9 million | |
| Debt | No long-term debt; $17.5 million unsecured line of credit available (minor borrowings). |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 6.0% in the quarter and 3.9% year-to-date (YTD) compared to the prior year. Comparable store sales rose 1.3% in the quarter but declined 0.1% YTD.
- Profitability: Operating income increased 7.4% in the quarter but decreased 4.6% YTD. Net income rose 8.2% in the quarter but fell 4.4% YTD.
- Expense Increases: General and administrative expenses surged 51.8% in the quarter and 31.7% YTD, driven by higher payroll and a loss on asset disposal. Selling expenses increased 4.0% in the quarter but improved as a percentage of sales.
- Inventory: Inventory levels increased significantly to $84.1 million from $60.0 million at the start of the fiscal year, resulting in a $24.0 million cash outflow for inventory build-up YTD.
- Dividends: The company initiated a quarterly dividend of $0.10 per share in the third quarter, totaling $2.1 million in cash outflow.
Outlook, Risks, and Management Commentary
- Capital Expenditures: Management estimates total capital expenditures for fiscal 2003 will be approximately $19.6 million (before landlord allowances). Four additional lease contracts were signed as of November 1, 2003.
- Liquidity: The company maintains strong liquidity with $87.3 million in cash and a $17.5 million line of credit. Management believes existing cash and operating cash flow are sufficient to fund operations and expansion for the next several years.
- Seasonality: The business is highly seasonal, with the Christmas and back-to-school seasons historically accounting for approximately 40% of annual net sales.
- Risks: Key risks include changes in fashion trends, competitive factors, general economic conditions, and the accuracy of estimates regarding inventory obsolescence and merchandise returns.
- Stock-Based Compensation: The company granted performance-based restricted stock to management. Pro forma net income (under fair value accounting) would be lower than reported net income.
Investor Verification Checklist
- Inventory Valuation: Verify the adequacy of reserves for obsolescence and markdowns given the $24 million increase in inventory YTD.
- Comparable Store Sales: Monitor the divergence between total sales growth and the slight decline in comparable store sales YTD.
- Expense Control: Track the trajectory of General and Administrative expenses, which rose sharply due to payroll and asset disposal losses.
- Dividend Sustainability: Assess the impact of the new quarterly dividend policy on future cash flows and capital expenditure plans.
- Store Expansion: Confirm the progress of the four signed lease contracts and the completion of the one remaining new store construction project for fiscal 2003.