Business context and reporting period
The Buckle, Inc. operates a single-segment apparel, footwear, and accessories retail business through stores and e-commerce. This 10-Q covers the 13 and 26 weeks ended August 3, 2019, compared with periods ended August 4, 2018. The request metadata says “2018 Q2,” but the filing itself is for fiscal 2019’s second quarter.
At August 3, 2019, Buckle operated 449 stores in 42 states, versus 455 stores in 43 states a year earlier. Online sales were 11.7% of first-half sales, up from 10.9%.
Financial performance
| Metric | 13 weeks ended Aug. 3, 2019 | 13 weeks ended Aug. 4, 2018 | 26 weeks ended Aug. 3, 2019 | 26 weeks ended Aug. 4, 2018 |
|---|---|---|---|---|
| Net sales | $203.8 million | $201.1 million | $405.1 million | $406.0 million |
| Gross profit / margin | $78.7 million / 38.6% | $78.9 million / 39.2% | $155.4 million / 38.4% | $158.6 million / 39.1% |
| Operating income / margin | $19.6 million / 9.6% | $20.2 million / 10.0% | $38.3 million / 9.5% | $43.4 million / 10.7% |
| Net income | $16.4 million | $15.7 million | $31.5 million | $34.0 million |
| Diluted EPS | $0.34 | $0.32 | $0.65 | $0.70 |
| Operating cash flow | Not presented quarterly | $35.5 million | $30.9 million |
Second-quarter comparable sales rose 1.8%; transactions increased 3.1% and units per transaction increased 2.8%, while average unit retail fell 4.1%. E-commerce sales rose 9.2% to $23.1 million. First-half comparable sales increased 0.3%, while e-commerce sales rose 7.3% to $47.5 million.
At August 3, cash and cash equivalents were $178.0 million, short-term investments $52.1 million, and working capital $224.8 million. Total cash and investments were $245.6 million, including $15.5 million of long-term investments. The company had no bank borrowings and an available $25 million unsecured credit line, expiring July 31, 2021. Operating lease liabilities totaled $363.6 million, including $76.0 million current; these are lease obligations, not bank borrowings.
First-half investing cash flow was negative $1.3 million, including $4.2 million of property and equipment purchases and net investment-security proceeds. Financing cash flow was negative $24.7 million, primarily from $24.6 million of dividends. Cash increased $9.6 million to $178.0 million.
Material changes versus prior comparable periods
- Second-quarter sales increased 1.4%, but gross margin declined 0.6 percentage points and operating margin declined 0.4 points. Net income increased 4.6%, helped in part by higher investment income and a lower effective tax rate.
- First-half sales were down 0.2%; gross margin fell 0.7 points and operating margin fell 1.2 points. Net income declined 7.4% and diluted EPS declined from $0.70 to $0.65.
- Management attributed gross-margin pressure mainly to lower merchandise margins. First-half occupancy, buying, and distribution costs also increased as a share of sales.
- Operating cash flow rose to $35.5 million from $30.9 million, despite lower first-half earnings.
Outlook, risks, contingencies, and unusual items
- Management estimated fiscal 2019 capital expenditures of $8 million to $12 million, primarily for store projects and technology, and anticipated one additional full remodel during the rest of the year. It expected cash, investments, and operating cash flow to fund anticipated needs for several years; no merger or acquisition plans were stated.
- Buckle adopted lease accounting Topic 842 in February 2019, recording operating lease right-of-use assets and liabilities. Adoption did not materially affect first-half results; prior-year balance-sheet figures were not restated.
- The business is seasonal, with holiday and back-to-school periods historically contributing approximately 35% of annual sales. Interim results may not indicate full-year performance.
- Risks cited include changes in demand, product mix, fashion trends, competition, general economic conditions, markdowns, and retail-industry conditions. Management noted that adverse conditions could reduce sales, profitability, and cash flow.
- A 2017 payment-card data security incident remained a disclosed contingency. The company did not expect potential card-brand assessments or related liabilities to materially affect results or financial position. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended period: the supplied metadata says 2018 Q2, while this filing reports the quarter ended August 3, 2019.
- Track merchandise margins, markdown activity, average unit retail, and the mix of transactions and units sold as explanations for sales and margin trends.
- Review the scale and payment profile of lease commitments: recorded lease liabilities were $363.6 million, with $405.9 million of undiscounted future payments.
- Assess whether the $8 million to $12 million capital-expenditure estimate, dividend payments, and operating cash flow remain consistent with liquidity needs.
- Monitor store-count changes, e-commerce growth, and the seasonal impact on full-year results.