The Buckle, Inc. — Form 10-Q Summary
Period: The filing covers the 13 and 26 weeks ended August 3, 2013, compared with periods ended July 28, 2012. The request metadata says “2012 Q2,” but the filing itself is for fiscal 2013 Q2.
Business context
Buckle is a single-segment retailer of casual apparel, footwear, and accessories for young men and women. It operated 452 stores in 43 states at August 3, 2013, versus 439 stores a year earlier. It opened 12 stores and substantially remodeled three in the first half of fiscal 2013.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Net sales | $232.5 million | $215.5 million | $502.2 million | $479.2 million |
| Gross profit | $94.5 million | $86.5 million | $211.5 million | $200.7 million |
| Gross margin | 40.6% | 40.1% | 42.1% | 41.9% |
| Operating income | $39.4 million | $36.4 million | $98.7 million | $94.4 million |
| Operating margin | 16.9% | 16.9% | 19.6% | 19.7% |
| Net income | $25.1 million | $23.2 million | $62.7 million | $61.0 million |
| Diluted EPS | $0.52 | $0.49 | $1.31 | $1.28 |
Q2 sales rose 7.9%; comparable-store sales increased 3.2%. Comparable-store growth reflected higher units per transaction and average selling prices, partly offset by fewer transactions. Online sales grew 5.3% to $16.8 million. First-half sales increased 4.8%, comparable-store sales rose 2.2%, and online sales grew 5.7% to $37.7 million.
For the first half, operating cash flow was $26.2 million, down from $31.6 million. Investing cash outflow was $21.6 million, including $18.9 million of property and equipment purchases; financing cash outflow was $19.1 million, including $19.3 million of dividends. Cash and cash equivalents ended at $103.1 million, compared with $117.6 million at fiscal year-end.
At August 3, working capital was $191.2 million; cash and short-term investments totaled $128.8 million, and total cash and investments were $168.3 million. The company had no bank borrowings and had an undrawn $25 million unsecured credit line, with up to $20 million available for letters of credit. Inventory was $133.6 million, up from $103.9 million at February 2, 2013.
Changes, outlook, and risks
- Q2 gross margin improved 0.5 percentage points, helped by leveraging occupancy, buying, and distribution costs; first-half gross margin improved 0.2 points, attributed to better merchandise margins.
- General and administrative expense rose 17.6% in Q2, including higher legal and equity-compensation costs. First-half operating margin edged down 0.1 percentage point. First-half other income declined to $0.9 million from $2.2 million, largely because of state economic-development incentives received in the prior-year first quarter.
- Management estimated fiscal 2013 capital expenditures of $30–$34 million and expected about seven additional store projects during the rest of the year, including one new store and six substantial remodels and/or relocations. Management said existing funds and operating cash flow should cover anticipated needs for several years; the filing provides no earnings or sales guidance.
- ARS and preferred securities had $14.0 million par value and $11.1 million reported fair value, including $1.2 million temporary impairment and $1.7 million other-than-temporary impairment. Failed auctions and issuer credit risks constrain liquidity; management did not expect further failures to materially impair its ability to fund operations, but future impairments remain possible.
- Results are seasonal, with holiday and back-to-school periods historically contributing the greatest sales volume. Risks include fashion and product-mix shifts, markdowns, competition, economic conditions, inventory valuation, and store expansion costs. Operating lease commitments totaled $377.5 million; management reported no known contractual-obligation trend expected to materially affect financial condition or results.
Important facts for investors to verify
- Confirm the intended reporting year: the supplied metadata says 2012 Q2, while this filing reports the quarter ended August 3, 2013.
- Track comparable-store sales, transaction counts, and online growth to assess the durability and quality of sales increases.
- Monitor inventory growth and markdown reserves, as well as gross-margin trends and operating expense growth.
- Assess liquidity and cash conversion, including lower operating cash flow, planned capital spending, dividends, and the liquidity/valuation of auction-rate securities.
- Review the assumptions behind the ARS impairment estimates and the company’s planned store openings and remodels.