The Buckle, Inc. — Form 10-K Summary
Period clarification: The supplied filing is for fiscal 2017, the 53 weeks ended February 3, 2018—not fiscal 2016 Q4. Fiscal 2017 Q4 was a 14-week quarter.
Business context and reporting period
Buckle operates specialty retail stores selling casual apparel, footwear, and accessories, primarily to fashion-conscious young adults. At fiscal year-end it operated 457 stores in 44 states. Denim represented 41.5% of sales and tops 32.3%; online sales were $98.2 million.
Financial performance and liquidity
| Metric | Fiscal 2017 | Fiscal 2016 |
|---|---|---|
| Net sales | $913.4 million | $974.9 million |
| Comparable-store sales change | (7.2)% | (13.5)% |
| Gross profit / margin | $380.0 million / 41.6% | $397.2 million / 40.7% |
| Operating income / margin | $134.1 million / 14.7% | $152.8 million / 15.7% |
| Net income / diluted EPS | $89.7 million / $1.85 | $98.0 million / $2.03 |
| Operating cash flow | $119.7 million | $148.9 million |
At year-end, cash and cash equivalents were $165.1 million, short-term investments $50.8 million, long-term investments $21.5 million, and working capital $262.7 million. The company had no bank borrowings and had a $25 million unsecured credit line. Fiscal 2017 capital expenditures were $13.5 million. The company paid $133.9 million in dividends, including a $1.75-per-share special dividend and regular quarterly dividends of $0.25 per share.
Fiscal 2017 Q4 sales were $281.2 million, net income was $42.0 million, and diluted EPS was $0.87; the comparable fiscal 2016 quarter reported sales of $280.0 million, net income of $36.0 million, and diluted EPS of $0.74.
Material changes versus the prior period
- Annual sales fell 6.3% despite the additional fiscal week; comparable-store sales declined 7.2%. Transactions fell 4.2% and average retail price per item fell 4.7%, partly offset by more units per transaction.
- Gross margin improved 0.9 percentage point, mainly from better merchandise margins and the end of the prior loyalty program’s impact, partly offset by occupancy, buying, and distribution cost deleverage.
- Operating income fell 12.2% and net income fell 8.4%. Selling and general and administrative expenses increased as a share of sales.
- Operating cash flow declined from $148.9 million to $119.7 million. Cash and equivalents fell $31.5 million, with dividends paid exceeding net income.
- The store count declined from 467 to 457 after 12 closures and two openings. Online sales decreased 1.6%.
Outlook, risks, and unusual items
- For fiscal 2018, management expected no new store openings, approximately four full remodels, and capital expenditures of $10–$15 million, primarily for remodels and IT. It planned to continue quarterly dividends and stated available cash, investments, and operating cash flow should fund anticipated needs for several years.
- The Tax Cuts and Jobs Act lowered the federal corporate tax rate; the company recorded a provisional reduction of about $0.9 million in its net deferred tax asset and expected a lower effective tax rate in fiscal 2018.
- A data security incident affected certain in-store guest credit-card information from October 28, 2016 through April 14, 2017. The company reported containment and security enhancements, but said potential assessments, fines, penalties, or other liabilities could not yet be reasonably estimated.
- Key risks include fashion sensitivity, weak consumer spending, competition and e-commerce shifts, private-label mix, reliance on a single distribution facility, cyber and IT disruption, and foreign sourcing. Two vendors represented notable sales concentrations: Miss Me/Rock Revival at 18.2% and Axis Denim at 14.0%.
- Operating lease commitments totaled $323.9 million. Auction-rate securities had a $120,000 temporary impairment; management believed it could hold them until recovery. No litigation was identified as expected to have a material effect.
Important facts for investors to verify
- Whether comparable-store sales, transactions, and online sales stabilize, and whether improved merchandise margins persist.
- The ultimate financial and legal consequences of the data security incident.
- Fiscal 2018 tax effects and the final accounting for the Tax Act.
- Whether operating cash flow can support dividends and planned capital spending amid continued sales pressure.
- Inventory valuation, vendor concentration, lease obligations, and the recoverability of auction-rate securities.