The Buckle, Inc. — Form 10-Q Summary
Period: The filing covers the 13 weeks ended May 4, 2019 (fiscal 2019 first quarter), compared with the 13 weeks ended May 5, 2018. Although the request metadata says 2018 Q1, the supplied filing is for 2019 Q1. Amounts below are in millions except per-share data.
Business context and financial results
Buckle operates one reportable segment, selling casual apparel, footwear, and accessories through stores and e-commerce. It had 449 stores in 42 states at quarter-end, versus 456 stores in 43 states a year earlier. Online sales were 12.1% of net sales, up from 11.3%.
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $201.3 | $204.9 |
| Gross profit / margin | $76.7 / 38.1% | $79.7 / 38.9% |
| Operating income / margin | $18.7 / 9.3% | $23.3 / 11.4% |
| Net income | $15.1 | $18.3 |
| Diluted earnings per share | $0.31 | $0.38 |
| Cash from operations | $29.3 | $19.3 |
Cost of sales was $124.7 million; selling and general and administrative expenses were $46.6 million and $11.3 million. The effective income tax rate was 24.5%, compared with 25.9%.
Liquidity, cash flow, and obligations
- Quarter-end cash and cash equivalents were $183.9 million; short-term investments were $53.7 million and long-term investments were $15.7 million. Working capital was $217.5 million, and total cash and investments were $253.3 million.
- Operating cash flow was $29.3 million. Investing activities used $1.5 million; financing activities used $12.3 million, entirely for dividends. Cash increased $15.5 million during the quarter.
- The company reported no bank borrowings. It had an unsecured $25 million credit line, expiring July 31, 2019, with $4.2 million in outstanding letters of credit.
- Operating lease liabilities totaled $373.3 million, including $72.9 million current and $300.4 million non-current. The filing reports no interest-bearing debt outstanding.
Material changes and management commentary
- Sales declined 1.7%; comparable sales declined 1.3%. Management attributed the comparable-sales decrease primarily to a 3.5% decline in average retail price per item and a 1.2% decline in transactions, partly offset by 3.3% more units per transaction. Online sales rose 5.6% to $24.4 million.
- Gross margin fell 0.8 percentage points. Management cited deleveraged occupancy, buying, and distribution costs (0.5 percentage points of sales) and lower merchandise margins (0.3 points).
- Selling expenses rose to 23.2% of sales from 22.4%, mainly due to store compensation and other selling costs. G&A rose to 5.6% of sales from 5.1%, reflecting IT and strategic investment spending, as well as professional and consulting fees.
- The company adopted ASC 842 lease accounting on February 3, 2019. It recorded approximately $362.6 million of net right-of-use assets and $389.8 million of lease liabilities at adoption; comparative-period balance-sheet amounts were not restated. Adoption did not materially affect quarterly operating results.
- Management expects fiscal 2019 capital expenditures of approximately $8–$12 million and planned three additional full remodels for the remainder of the year. It believes cash, investments, and operating cash flow will fund anticipated needs for the next several years; it provided no sales or earnings guidance.
Risks, contingencies, and unusual items
- Results are seasonal, with holiday and back-to-school periods historically accounting for about 35% of annual sales. Fashion trends, competition, economic conditions, markdowns, and consumer demand may affect sales, margins, and cash flow.
- The company disclosed a 2017 retail payment-data security incident affecting certain store purchases from October 2016 to April 2017. It said the issue was contained and security enhancements implemented; potential card-brand assessments were not expected to materially affect results or financial position.
- Management reported no material change to the risk factors in its prior annual report and no legal proceedings. Store-asset impairment was immaterial in the periods presented.
- The balance sheet’s sharp increase in assets and liabilities reflects lease-accounting adoption and is not, by itself, evidence of a comparable increase in funded borrowing.
Key facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q1 fiscal 2019, not Q1 2018.
- Track comparable sales, average selling prices, transaction counts, online growth, and merchandise margins for evidence of a sales and profitability recovery.
- Assess whether store and corporate expense growth, including IT investment, remains manageable as sales change.
- Review operating lease commitments and the upcoming credit-line expiration, alongside cash and investment balances.
- Monitor the planned capital expenditures and remodels, inventory markdown exposure, and any developments related to the data-security incident.