The Buckle, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2015, the thirteen weeks ended May 2, 2015. The filing compares results with the thirteen weeks ended May 3, 2014. Although the request metadata labels the period “2014 Q1,” the filing itself covers 2015 Q1.
Business context and financial performance
Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories. It had 463 stores in 44 states at quarter-end, versus 450 stores in 43 states a year earlier. It opened three stores and substantially remodeled five during the quarter.
| Metric | Q1 fiscal 2015 | Q1 fiscal 2014 | Change |
|---|---|---|---|
| Net sales | $271.3 million | $271.7 million | Down 0.1% |
| Gross profit | $113.6 million | $117.2 million | Down 3.1% |
| Gross margin | 41.9% | 43.1% | Down 1.2 percentage points |
| Operating income | $52.8 million | $59.2 million | Down 10.8% |
| Operating margin | 19.5% | 21.8% | Down 2.3 percentage points |
| Net income | $33.6 million | $37.3 million | Down 10.1% |
| Diluted earnings per share | $0.70 | $0.78 | Down $0.08 |
| Cash from operating activities | $21.8 million | $29.9 million | Down $8.2 million |
Liquidity, cash flow, and capital
- At May 2, 2015, cash and cash equivalents were $134.6 million, short-term investments $22.8 million, and long-term investments $45.1 million. Management reported total cash and investments of approximately $202.5 million and working capital of $220.3 million.
- Cash increased $0.9 million during the quarter. Investing activities used $9.7 million, including $11.3 million of property and equipment purchases; financing activities used $11.2 million, primarily for dividends.
- The company paid dividends of $11.2 million, or $0.23 per share, compared with $10.6 million, or $0.22 per share, in the prior-year quarter.
- No bank borrowings were outstanding. The company had an unsecured $25.0 million credit line, extended to July 31, 2017; letters of credit outstanding were $1.7 million.
- Total liabilities were $164.6 million and stockholders’ equity was $380.0 million at quarter-end. The filing reports no outstanding bank debt.
Material changes and management commentary
- Comparable-store sales fell 2.2% (a $6.0 million decrease). Transactions declined 6.0% and units per transaction fell 0.4%, partly offset by a 4.5% increase in average retail price per item. Online sales rose 12.9% to $24.2 million.
- Gross margin pressure reflected deleveraged occupancy, buying, and distribution costs associated with lower comparable sales, as well as lower merchandise margins. Selling and general and administrative expenses also rose as a share of sales.
- Management planned approximately 15 additional store projects during the rest of fiscal 2015, including about six new stores and nine remodels or relocations. Estimated fiscal-year capital expenditures were $35–$39 million, including store projects, IT investment, and the new home-office building, which was substantially completed and placed in service during the quarter.
- Management stated that available cash, investments, and operating cash flow should fund anticipated working-capital needs and capital expenditures for the next several years. The filing provides no specific sales or earnings guidance.
- The business is seasonal: the holiday and back-to-school periods historically account for approximately 35% of annual sales. Interim results may not indicate full-year performance.
Risks, contingencies, and unusual items
- The company held auction-rate securities with $8.1 million par value and $7.4 million estimated fair value, including a $0.7 million temporary impairment. Failed auctions limit liquidity; management believed it could hold the securities until recovery or maturity and did not expect a material effect on its ability to fund operations. Further impairment remains possible.
- Key business risks cited include changes in demand, product mix and fashion trends, competition, general economic conditions, markdowns, and the retail environment. Inventory valuation and investment impairment depend on management estimates.
- Contractual obligations totaled $382.1 million, principally operating leases of $358.2 million. No material legal proceedings were reported, and the filing stated there were no material changes to previously disclosed risk factors.
- Management was evaluating the effect of the forthcoming revenue-recognition standard, ASU 2014-09. The filing reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the comparable-store sales decline and lower transaction count persist, and whether online growth continues.
- Whether merchandise margins recover and expense growth moderates enough to stabilize operating and gross margins.
- Actual fiscal 2015 capital spending and execution of planned store openings and remodels against the $35–$39 million estimate.
- Liquidity and valuation developments for auction-rate securities, including any changes in impairment assumptions or redemption prospects.
- Cash generation after dividends and capital expenditures, alongside the company’s substantial operating-lease commitments.