BKE

Business Context and Reporting Period

Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Thirteen and twenty-six weeks ended August 4, 2001.
Business Overview: Retailer of medium to better-priced casual apparel and footwear for young men and women. As of August 4, 2001, the company operated 288 stores in 37 states.

Key Financial Metrics

Cash Flow (26 Weeks): Net cash used in operating activities was $7.1 million. Net cash used in investing activities was $7.1 million (primarily $6.5 million for property and equipment). Net cash provided by financing activities was $2.0 million (stock option exercises).

Material Changes vs. Prior Period

• Sales Performance: Net sales increased 1.9% in the quarter but decreased 0.4% year-to-date. Comparable store sales declined significantly, dropping 11.1% in the quarter and 9.9% year-to-date.
• Pricing Pressure: The decline in comparable store sales was partially driven by a 7.5% decrease in average price per piece sold in the quarter and a 7.2% decrease year-to-date.
• Profitability: Operating income decreased 5.6% in the quarter and 14.2% year-to-date. Gross profit margins compressed slightly due to higher occupancy costs, partially offset by improved merchandise margins.
• Expense Leverage: Selling and general/administrative expenses increased as a percentage of sales due to the decline in comparable store sales leverage, specifically driven by higher salaries, advertising, and travel expenses.
• Store Count: The company opened 14 new stores and renovated 4 stores in the first half of fiscal 2001, contributing to overall sales volume despite the comparable store decline.

Guidance, Outlook, and Risks

• Capital Expenditures: Management estimates total capital expenditures for fiscal 2001 will be approximately $18.0 million (before landlord allowances). This includes approximately 13 additional store projects (10 new, 3 remodeled/relocated) for the remainder of the year.
• Liquidity: The company maintains $17.5 million in unsecured lines of credit ($7.5 million operating, $10.0 million for letters of credit). No borrowings were made during the first half of fiscal 2001. Management believes existing cash and operating cash flow are sufficient to fund requirements 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: Forward-looking statements are subject to risks including changes in fashion trends, competitive factors, and general economic conditions in the retail apparel industry.
• Accounting Changes: The company adopted SFAS No. 133 (Derivatives) with no significant impact. Future adoption of SFAS No. 141 and 142 (Business Combinations/Goodwill) is not expected to have a significant impact.

Investor Verification Checklist

• Comparable Store Sales Trend: Verify the sustainability of the 9.9% year-to-date decline in comparable store sales and the 7.2% drop in average selling price.
• Inventory Levels: Review the $26.8 million cash outflow for inventory in the first half of the year to ensure stock levels align with demand given the sales decline.
• Occupancy Costs: Assess the impact of higher occupancy costs on gross margins and whether these are temporary or structural.
• Capital Allocation: Confirm the execution of the $18.0 million capital expenditure plan and the return on investment for the 14 new stores opened.
• Seasonal Performance: Monitor the upcoming back-to-school and Christmas seasons, which drive 40% of annual revenue, to gauge recovery potential.