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, 2007 (Fiscal 2007 Q2).
Business Overview: Retailer of medium to better-priced casual apparel, footwear, and accessories for young men and women. As of August 4, 2007, the company operated 362 stores in 38 states.
Key Financial Metrics
| Metric | 13 Weeks Ended Aug 4, 2007 |
26 Weeks Ended Aug 4, 2007 |
13 Weeks Ended Jul 29, 2006 |
26 Weeks Ended Jul 29, 2006 |
|---|---|---|---|---|
| Net Sales | $124.3 million | $245.4 million | $102.4 million | $212.0 million |
| Gross Profit | $46.4 million | $91.9 million | $34.1 million | $73.1 million |
| Gross Margin % | 37.4% | 37.5% | 33.3% | 34.5% |
| Operating Income | $16.5 million | $33.6 million | $8.3 million | $21.5 million |
| Net Income | $11.8 million | $24.0 million | $6.6 million | $16.0 million |
| Diluted EPS | $0.38 | $0.78 | $0.22 | $0.53 |
| Cash & Equivalents | $25.6 million (as of Aug 4, 2007) | |||
| Short-term Investments | $132.1 million (as of Aug 4, 2007) | |||
| Working Capital | $216.2 million (as of Aug 4, 2007) | |||
| Operating Cash Flow (26 wks) | $16.9 million |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 21.3% in the quarter and 15.7% year-to-date compared to the prior year. Comparable store sales rose 10.1% for the quarter and 8.3% year-to-date.
- Margin Expansion: Gross margin improved significantly, driven by a 1.7% increase in merchandise margins (due to higher regular-price selling) and a reduction in buying, distribution, and occupancy costs as a percentage of sales.
- Profitability: Operating income nearly doubled (98.5% increase) for the quarter and grew 55.7% year-to-date. Net income increased 77.6% for the quarter and 50.0% year-to-date.
- Expense Management: Selling expenses decreased as a percentage of sales (20.2% vs 21.6% prior year) due to payroll leverage and reduced stock option compensation. General and administrative expenses increased as a percentage of sales (3.9% vs 3.6%) primarily due to equity compensation and incentive bonus accruals.
- Cash Flow: Operating cash flow for the first half of fiscal 2007 was $16.9 million, a significant improvement over the $2.2 million generated in the same period of fiscal 2006.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates total capital expenditures for fiscal 2007 will be approximately $24 million to $27 million. This includes approximately nine additional store construction projects and remodels for the remainder of the year.
- Liquidity: The company maintains $187.1 million in total cash and investments. Management believes existing cash and operating cash flow are sufficient to fund operations and expansion for the next several years. There were no bank borrowings during the period.
- Seasonality: The business is seasonal, with the holiday season and back-to-school season historically contributing the greatest volume of sales.
- Risks: Future results could be impacted by changes in fashion trends, competitive factors, general economic conditions, and the ability to maintain merchandise margins. The company noted that inventory valuation relies on estimates regarding obsolescence and markdowns.
- Accounting Changes: The company adopted FIN 48 (Accounting for Uncertainty in Income Taxes) with no material impact on financial statements.
Investor Verification Checklist
- Comparable Store Sales Drivers: Verify the sustainability of the 10.1% comparable store sales increase, which was driven by transaction volume and a 2.8% increase in average retail price per piece.
- Inventory Levels: Monitor inventory levels, which increased to $96.0 million (from $70.3 million at the prior year-end), and assess the risk of markdowns or obsolescence given the $6.4 million reserve.
- Capital Expenditure Execution: Track the execution of the $24-$27 million capital expenditure plan and its impact on future cash flows.
- Stock-Based Compensation: Review the impact of equity compensation on future earnings, noting the increase in G&A expenses related to non-vested stock grants.
- Dividend Policy: Note the payment of $12.0 million in dividends during the first half of fiscal 2007 and assess future payout sustainability.