The Buckle, Inc. — Form 10-K Summary
Period note: The filing covers fiscal 2016, the 52 weeks ended January 28, 2017, with fiscal 2015 as the comparable period. This does not correspond to the requested “2015 Q4”; the filing text does not provide a separate Q4 filing summary. Amounts below are in U.S. dollars.
Business context
Buckle is a U.S. specialty retailer of casual apparel, footwear, and accessories, operating 467 stores in 44 states at fiscal year-end. Denim and tops represented 42.2% and 30.8% of fiscal 2016 sales, respectively. Online sales were $99.8 million.
Financial performance and liquidity
| Metric | Fiscal 2016 | Fiscal 2015 |
|---|---|---|
| Net sales | $974.9 million | $1,119.6 million |
| Gross profit / margin | $397.2 million / 40.7% | $481.4 million / 43.0% |
| Operating income / margin | $152.8 million / 15.7% | $229.6 million / 20.5% |
| Net income | $98.0 million | $147.3 million |
| Diluted EPS | $2.03 | $3.06 |
| Operating cash flow | $148.9 million | $159.3 million |
Comparable-store sales fell 13.5%. Working capital was $287.8 million; cash and cash equivalents were $196.5 million, and short-term investments were $50.0 million. Total cash and investments were $264.6 million, including $18.1 million of long-term investments. The company had no bank borrowings and no long-term debt reported. It maintained a $25 million unsecured credit line, expiring July 31, 2017.
Capital expenditures were $31.7 million. Cash dividends paid were $84.9 million, including a $0.75-per-share special dividend; regular quarterly dividends were $0.25 per share. Management said existing cash, investments, and operating cash flow should fund anticipated needs for the next several years.
Changes versus prior year
- Sales declined 12.9%, while comparable sales fell 13.5%; excluding the $15.4 million impact of the new loyalty program, management reported total sales down 11.5% and comparable sales down 12.2%.
- Comparable-store transactions declined 10.2% and average retail price per item declined 4.1%, partly offset by 1.7% more units per transaction. Online sales decreased 5.4%.
- Gross margin contracted 2.3 percentage points, primarily from deleveraged occupancy, buying, and distribution costs; higher merchandise margins partly offset the pressure.
- Operating income fell 33.5% and net income fell 33.5%. Store count was 467 versus 468, following five openings and six closures during fiscal 2016.
- Operating cash flow decreased to $148.9 million from $159.3 million. Inventory fell to $125.7 million from $149.6 million.
Outlook, risks, and unusual items
- For fiscal 2017, management anticipated about two new stores, seven full remodels, several smaller remodeling projects, and capital spending of $25–$30 million. It planned to continue quarterly dividends; no earnings or sales guidance was provided.
- Key risks include fashion and merchandise-selection misjudgments, continued comparable-sales weakness, competition and changing mall traffic, e-commerce execution, consumer-spending conditions, vendor concentration, reliance on a single distribution facility, foreign sourcing, and information-system and cybersecurity risks.
- The new Guest Loyalty program reduced reported revenue through rewards redeemed and estimated future rewards; the year-end liability for estimated future rewards was $8.9 million. Fiscal 2016 also included $16.2 million of marketing and advertising expense.
- Auction-rate securities were $1.7 million at reported fair value, with a $130,000 temporary impairment and limited liquidity. Management did not expect further auction failures to materially impair its ability to fund operations.
- Operating lease commitments totaled $355.3 million, including $68.5 million due within one year. A related-party note receivable from a life-insurance trust controlled by the Chairman was $1.2 million.
- No material litigation was reported. Deloitte issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether comparable-sales and transaction trends stabilized after the sharp fiscal 2016 declines, and how much loyalty rewards affect reported sales.
- Whether gross margin and operating profitability recover as sales change, given substantial store and lease costs.
- Fiscal 2017 capital spending, store openings/remodels, and the sustainability of regular dividends amid lower earnings and operating cash flow.
- Liquidity, valuation assumptions, and any further impairment or recovery of the remaining auction-rate securities.
- Exposure to key vendors, mall traffic, online competition, and the $355.3 million of operating lease commitments.