Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Thirteen weeks ended May 1, 1999
Business Overview: Retailer of medium to better-priced casual apparel and footwear for young men and women. As of May 1, 1999, the company operated 231 stores in 31 states.
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Net Sales | $79.7 million | $67.0 million |
| Gross Profit | $27.1 million | $22.7 million |
| Gross Margin | 34.0% | 33.9% |
| Operating Income | $9.8 million | $7.6 million |
| Net Income | $6.5 million | $5.0 million |
| Diluted EPS | $0.28 | $0.21 |
| Cash & Equivalents | $51.1 million | $44.6 million |
| Working Capital | $107.1 million | N/A |
| Debt | $0 (No borrowings) | $0 |
Cash Flow: Net cash used in operating activities was $3.3 million, primarily due to seasonal inventory buildup and bonus payments. Net cash used in investing activities was $7.1 million, driven by store construction and technology upgrades.
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 18.9% year-over-year. Comparable store sales rose 6.9%, driven by a 4.5% increase in average price per piece. New store openings contributed 12.0% to total sales growth.
- Profitability: Operating income increased 29.5% to $9.8 million. Net income rose 29.0% to $6.5 million.
- Expense Management: Selling expenses decreased as a percentage of sales (18.6% vs. 19.3%) due to executive compensation restructuring and leverage in supply/advertising costs. General and administrative expenses also improved as a percentage of sales (3.1% vs. 3.3%).
- Inventory: Inventory levels increased significantly, resulting in a $12.6 million cash outflow in operating activities compared to $2.1 million in the prior year.
Outlook, Risks, and Management Commentary
- Capital Expenditures: Management estimates total capital expenditures for fiscal 1999 will be approximately $22.5 million (before landlord allowances). This includes 23 additional store projects (18 new, 5 remodeled/relocated).
- Liquidity: The company maintains a $5.0 million unsecured line of credit and a $5.0 million letter of credit facility. No borrowings were made during the quarter. Management believes existing cash and operating cash flow are sufficient to fund future requirements.
- Year 2000 Compliance: The company is actively remediating systems. A $1.5 million deposit has been paid for Point-of-Sale software, with total remaining costs estimated under $5 million. Management does not expect a material adverse effect on operations.
- Seasonality: The business is highly seasonal, with the Christmas and back-to-school seasons historically accounting for approximately 40% of annual net sales.
Investor Verification Checklist
- Verify the sustainability of the 6.9% comparable store sales increase and the 4.5% price per piece increase.
- Monitor the execution of the $22.5 million capital expenditure plan and its impact on future cash flows.
- Confirm the timeline and success of the Year 2000 Point-of-Sale system rollout scheduled for completion by July 1999.
- Assess the impact of the significant inventory buildup ($12.6 million cash outflow) on future working capital needs.
- Review the effectiveness of the executive compensation restructuring in maintaining expense leverage as sales grow.