The Buckle, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the 13 and 26 weeks ended July 29, 2017, not 2016 Q2 as stated in the request metadata. The filing is unaudited.
Business context and reporting period
Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories. It had 463 stores in 44 states as of July 29, 2017. During the first half of fiscal 2017, it opened one store, remodeled seven, and closed five.
Financial performance
| Metric | 13 weeks ended July 29, 2017 | 13 weeks ended July 30, 2016 | 26 weeks ended July 29, 2017 | 26 weeks ended July 30, 2016 |
|---|---|---|---|---|
| Net sales | $195.7 million | $212.2 million | $407.9 million | $455.7 million |
| Gross profit / margin | $74.1 million / 37.9% | $79.9 million / 37.7% | $155.9 million / 38.2% | $174.6 million / 38.3% |
| Operating income / margin | $17.4 million / 8.9% | $24.1 million / 11.4% | $42.5 million / 10.4% | $60.5 million / 13.3% |
| Net income | $11.5 million | $15.5 million | $27.8 million | $38.6 million |
| Diluted EPS | $0.24 | $0.32 | $0.57 | $0.80 |
| Operating cash flow | Not separately presented | Not separately presented | $29.0 million | $44.4 million |
At July 29, 2017, cash and cash equivalents were $195.6 million, short-term investments were $48.2 million, working capital was $302.0 million, and total cash and investments were $262.1 million, including $18.3 million of long-term investments. Total liabilities were $136.4 million. The company had no bank borrowings; its $25.0 million unsecured credit line was undrawn. First-half capital expenditures were $7.2 million, and dividends paid were $24.4 million.
Material changes versus prior comparable periods
- Second-quarter sales declined 7.8%; comparable-store sales fell 7.7%. For the first half, sales declined 10.5% and comparable-store sales fell 10.3%.
- Management attributed comparable-store weakness mainly to fewer transactions and lower average retail prices per item, partly offset by more units per transaction. Online sales fell 4.5% in the quarter and 6.0% year to date.
- Second-quarter gross margin improved 0.2 percentage points, reflecting higher merchandise margins and the phaseout of the former loyalty program, partly offset by deleveraged occupancy, buying, and distribution costs. First-half gross margin declined 0.1 percentage points.
- Operating margin contracted in both periods. Selling expense as a share of sales rose with store payroll, online fulfillment, and marketing costs; quarterly G&A also increased, primarily from professional and consulting fees.
- First-half operating cash flow decreased to $29.0 million from $44.4 million. Cash ended the period at $195.6 million, down $0.9 million from the fiscal-year opening balance.
Outlook, risks, contingencies, and unusual items
- Management estimated fiscal 2017 capital expenditures of $15 million to $20 million, including store projects and technology investments, and expected one additional new-store opening. It believed cash, investments, and operating cash flow would cover anticipated needs for the next several years. No formal sales or earnings guidance was provided.
- A data-security incident involved guest credit-card information from purchases at some stores between October 28, 2016 and April 14, 2017. The company said malicious code was removed and security enhancements implemented; it reported no evidence that Social Security numbers, email or physical addresses, or the website were affected. Potential assessments, fines, penalties, or other liabilities could not yet be reasonably estimated.
- Operating lease commitments totaled $330.0 million. The company expected adoption of the new lease standard to significantly increase reported assets and liabilities.
- The company held auction-rate securities with $1.7 million par value and reported temporary impairment. It believed it could hold them until recovery, but further impairment remained possible.
- Retail results are seasonal and subject to fashion trends, competition, consumer demand, general economic conditions, markdowns, and store activity. Management noted that interim results are not necessarily indicative of a full year.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing covers Q2 and the first half of fiscal 2017, rather than 2016 Q2.
- Track comparable-store sales, transactions, average selling prices, online sales, and merchandise margins for evidence of stabilization or further deterioration.
- Monitor the data-security investigation and any resulting costs, claims, or assessments; the filing did not quantify potential exposure.
- Assess the cash-flow trend, planned capital spending and dividends, and the company’s ability to meet substantial lease commitments.
- Review the eventual effects of revenue-recognition and lease-accounting changes; the filing described expected presentation changes and a significant lease-balance-sheet impact.