The Buckle, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 39 weeks ended November 2, 2013, compared with periods ended October 27, 2012. The request metadata says “2012 Q3,” but the filing itself is for fiscal 2013 Q3.
Business context
Buckle operates as one segment, selling casual apparel, footwear, and accessories. It had 452 stores in 43 states at quarter-end, versus 440 stores a year earlier. In the first 39 weeks it opened 13 stores, substantially remodeled 5, and closed 1.
Financial performance
| Metric | 13 weeks | 39 weeks |
|---|---|---|
| Net sales | $286.8 million, up 0.9% | $789.0 million, up 3.4% |
| Gross profit / margin | $126.2 million / 44.0%, versus 44.1% | $337.7 million / 42.8%, versus 42.7% |
| Operating income / margin | $64.1 million / 22.3%, versus $66.2 million / 23.3% | $162.7 million / 20.6%, versus $160.6 million / 21.0% |
| Net income | $40.6 million, versus $41.9 million | $103.3 million, versus $102.9 million |
| Diluted EPS | $0.85, versus $0.88 | $2.15, versus $2.16 |
| Operating cash flow | Not separately reported | $69.3 million, versus $92.4 million |
Quarterly comparable-store sales declined 0.5%; year-to-date comparable-store sales increased 1.2%. Online sales rose 11.9% in the quarter to $22.0 million and 7.9% year to date to $59.7 million. Quarterly sales growth came from new stores and online sales, partly offset by weaker comparable-store transactions and lower average selling prices.
Quarterly gross margin edged down as higher occupancy, distribution, and buying costs more than offset improved merchandise margins. Selling expense rose 5.6% in the quarter, driven mainly by store payroll and health claims, contributing to lower operating and net income. Year-to-date operating income grew, but operating margin declined.
Liquidity, debt, and capital
At November 2, 2013, cash and cash equivalents were $130.8 million, short-term investments $25.5 million, and working capital $226.1 million. Cash and investments totaled $195.6 million. The company had no bank borrowings and reported no debt; it maintained a $25.0 million unsecured credit line, with $3.4 million of letters of credit outstanding. Total liabilities were $173.9 million.
Year-to-date operating cash flow fell to $69.3 million, primarily reflecting working-capital movements, including a $42.4 million inventory increase and reductions in accrued compensation and taxes payable. Capital expenditures were $25.2 million; dividends paid were $29.0 million. Management expected fiscal 2013 capital expenditures of approximately $30–$32 million and said available cash, investments, and operating cash flow should fund anticipated needs for several years.
Outlook, risks, and unusual items
- No earnings or comparable-sales guidance was provided. Management noted plans to complete about three additional store construction projects during the remainder of fiscal 2013. It also broke ground on an 80,000-square-foot office building, with construction expected to begin in fiscal 2014.
- Results are seasonal, with holiday and back-to-school periods historically accounting for about 35% of annual sales. Management cautioned that fashion trends, competition, economic conditions, markdowns, and store investment timing can affect results and cash flows.
- Auction-rate securities and preferred securities had par value of $13.4 million and reported fair value of $11.1 million, including $1.2 million of temporary impairment and $1.1 million of other-than-temporary impairment. Failed auctions limit liquidity; much of the valuation relies on Level 3 estimates. Management said it intends and is able to hold the securities while awaiting recovery.
- Operating lease obligations totaled $385.6 million, including $61.3 million due within one year. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether comparable-store sales and transaction trends improve, and whether online growth persists.
- Whether selling costs, occupancy costs, and markdowns continue to pressure operating margins.
- Inventory levels and the adequacy of the $7.8 million markdown and obsolescence reserve.
- Recovery prospects and valuation assumptions for the illiquid auction-rate securities.
- Actual fiscal 2013 capital spending and progress on planned store and office projects.