The Buckle, Inc. — Form 10-Q Summary
Business context and reporting period
The Buckle operates one reportable segment, selling casual apparel, footwear, and accessories. This filing covers the 13 weeks ended May 4, 2013, the first quarter of fiscal 2013, compared with the 13 weeks ended April 28, 2012, unless noted otherwise. Results are unaudited; management cautions that seasonal interim results may not indicate full-year performance. The company operated 443 stores at quarter-end, versus 431 a year earlier.
Financial performance and liquidity
| Metric | 13 weeks ended May 4, 2013 | Prior comparable period |
|---|---|---|
| Net sales | $269.7 million | $263.8 million |
| Gross profit / margin | $117.0 million / 43.4% | $114.2 million / 43.3% |
| Operating income / margin | $59.3 million / 22.0% | $58.0 million / 22.0% |
| Net income / margin | $37.6 million / 13.9% | $37.8 million / 14.3% |
| Diluted EPS | $0.78 | $0.79 |
| Operating cash flow | $21.1 million | $37.8 million |
| Capital expenditures | $11.2 million | $8.8 million |
At May 4, 2013, cash and cash equivalents were $116.6 million, short-term investments $27.6 million, and long-term investments $36.1 million; working capital was $177.1 million. The company had no bank borrowings and had a $25.0 million unsecured credit line, including a $20.0 million limit for letters of credit. Total liabilities were $165.3 million and stockholders’ equity was $320.3 million. Cash and investments totaled approximately $180.3 million.
Material changes versus the prior period
- Sales rose 2.3%. Comparable-store sales increased 1.2% versus the corresponding 13 weeks ended May 5, 2012; the filing uses a different prior-year comparison date for total sales because fiscal 2012 had a 53rd week.
- Comparable-store sales benefited from 3.6% more units per transaction and a 0.7% increase in average selling price, partly offset by 2.8% fewer transactions. Online sales increased 6.0% to $20.9 million.
- Gross margin improved 0.1 percentage point, reflecting a 0.35-point improvement in merchandise margins, partly offset by higher occupancy, buying, and distribution costs.
- Operating income increased 2.1%, while net income decreased 0.7%. Other income fell to $0.4 million from $1.8 million, primarily because of state economic development incentives received in the prior-year quarter.
- Operating cash flow declined to $21.1 million from $37.8 million, with the cash-flow statement showing a substantial use of cash from accrued employee compensation and inventory changes.
Outlook, risks, contingencies, and unusual items
- Management estimated fiscal 2013 capital expenditures of $34–$38 million and expected about 18 additional store projects during the remainder of the year, including approximately 10 new stores and 8 remodels or relocations. Management believed cash, investments, and operating cash flow would fund anticipated needs for several years.
- First-quarter capital spending included $5.4 million for a replacement corporate airplane; total capital expenditures were $11.2 million.
- The company’s $10.9 million carrying value of auction-rate and preferred securities is classified as long-term. These securities are exposed to liquidity and valuation risk; the filing reports $1.5 million of temporary impairment and $2.7 million of other-than-temporary impairment against par value. Management said it intended and was able to hold the securities while awaiting recovery, but acknowledged possible further impairment.
- Management cited fashion and product-mix changes, competition, general economic conditions, markdowns, and the timing and costs of store openings and remodels as factors that could affect results. Sales are seasonal, with holiday and back-to-school periods historically contributing about 35% of annual sales.
- Operating lease obligations totaled $367.5 million, including $60.9 million due within one year. The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no bank borrowings during the quarter.
Most important facts for investors to verify
- Whether comparable-store and online sales trends persist, and how transaction declines and merchandise margins evolve.
- Whether operating cash flow improves after the quarter’s working-capital outflows and annual bonus payments.
- Actual fiscal-year capital spending and store openings compared with management’s $34–$38 million estimate and planned projects.
- The liquidity, valuation assumptions, and potential additional impairment of auction-rate securities.
- The effect of seasonal sales, operating leases, and future store expansion on margins and cash needs.