Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Thirteen and twenty-six weeks ended August 3, 2002.
Business Overview: The Buckle is a retailer of medium to better-priced casual apparel and footwear for fashion-conscious young men and women. As of August 3, 2002, the company operated 300 stores across 37 states.
Key Financial Metrics
| Metric | 13 Weeks Ended Aug 3, 2002 |
26 Weeks Ended Aug 3, 2002 |
26 Weeks Ended Aug 4, 2001 |
|---|---|---|---|
| Net Sales | $83.5 million | $163.4 million | $155.0 million |
| Gross Profit | $23.8 million | $46.9 million | $45.0 million |
| Gross Margin % | 28.5% | 28.7% | 29.1% |
| Operating Income | $5.4 million | $10.9 million | $10.6 million |
| Net Income | $4.1 million | $8.4 million | $8.1 million |
| Diluted EPS | $0.19 | $0.38 | $0.38 |
| Cash & Equivalents | $79.8 million | Balance Sheet Data (Aug 3, 2002) | |
| Total Investments | |||
| Working Capital | $187.2 million | Balance Sheet Data (Aug 3, 2002) | |
| Long-Term Debt |
Cash Flow (26 Weeks): Net cash used in operating activities was $3.6 million. Net cash used in investing activities was $19.1 million, primarily due to investment purchases and property/equipment acquisitions. Net cash provided by financing activities was $0.5 million.
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 6.3% for the quarter and 5.4% year-to-date compared to the prior year. Comparable store sales increased 1.3% for the quarter but remained unchanged year-to-date.
- Store Count: The company opened 2 new stores and renovated 4 during the quarter, bringing the total to 300 stores (up from 288 in the prior year).
- Profitability: Operating income increased 7.5% for the quarter and 2.9% year-to-date. Gross margin percentage improved slightly for the quarter (28.5% vs 28.2%) but declined slightly year-to-date (28.7% vs 29.1%) due to higher occupancy costs.
- Expenses: Selling expenses increased 8.0% for the quarter, driven by higher payroll. General and administrative expenses remained relatively flat.
- Other Income: Decreased due to the absence of state tax incentive program income received in the prior year.
Guidance, Outlook, and Risks
Capital Expenditures: Management estimates total capital expenditures for fiscal 2002 will be approximately $23.0 million (before landlord allowances). This includes replacing a corporate airplane and completing approximately nine additional store projects (six new, three remodeled/relocated) in the remainder of the fiscal year.
Liquidity: The company maintains $7.5 million in an unsecured operating line of credit and $10.0 million for letters of credit. There were no borrowings during the first half of fiscal 2002. Management believes existing cash and operating cash flow are sufficient to fund requirements for the next year.
Risks and Contingencies:
- Seasonality: Approximately 40% of annual sales occur during the Christmas and back-to-school seasons.
- Estimates: Critical accounting estimates include merchandise returns, inventory obsolescence, bad debts, and self-funded health care claims.
- Market Risk: The company reports no market risk-sensitive instruments requiring disclosure.
- Forward-Looking Statements: Results may differ due to fashion trends, competitive factors, and general economic conditions.
Investor Verification Checklist
- Verify the sustainability of the 1.3% comparable store sales increase given the flat year-to-date comparable sales.
- Monitor the impact of rising occupancy costs on gross margins, which offset merchandise margin improvements year-to-date.
- Confirm the execution of the projected $23.0 million capital expenditure plan, including the corporate airplane replacement.
- Review the adequacy of inventory reserves given the significant increase in inventory levels ($28.8 million cash outflow for inventory in the first half).
- Assess the impact of the upcoming holiday season, which historically drives 40% of annual revenue.