The Buckle, Inc. — Form 10-Q Summary
Period: Third quarter and first 39 weeks of fiscal 2012, ended October 27, 2012; comparative periods ended October 29, 2011. The request metadata says “2011 Q3,” but the filing itself reports fiscal 2012 Q3.
Business context
The Buckle operates as a single-segment retailer of casual apparel, footwear, and accessories. At quarter-end it had 440 stores in 43 states, compared with 429 stores a year earlier. It opened nine stores and substantially remodeled 19 during the first 39 weeks of fiscal 2012.
Financial performance
Amounts below are in millions, except per-share data and percentages.
| Metric | 13 weeks ended Oct. 27, 2012 | 13 weeks ended Oct. 29, 2011 | 39 weeks ended Oct. 27, 2012 | 39 weeks ended Oct. 29, 2011 |
|---|---|---|---|---|
| Net sales | $284.1 | $273.4 | $763.4 | $725.9 |
| Gross profit | $125.4 | $118.7 | $326.1 | $308.8 |
| Gross margin | 44.1% | 43.4% | 42.7% | 42.5% |
| Operating income | $66.2 | $60.4 | $160.6 | $148.5 |
| Operating margin | 23.3% | 22.1% | 21.0% | 20.5% |
| Net income | $41.9 | $38.3 | $102.9 | $95.4 |
| Diluted EPS | $0.88 | $0.81 | $2.16 | $2.02 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $92.4 | $85.8 |
- Quarterly sales rose 3.9%; comparable-store sales increased 2.4%. Year-to-date sales rose 5.2%; comparable-store sales increased 3.2%.
- Comparable-store growth was primarily driven by higher average retail price per item: up 4.2% in the quarter and 5.9% year to date. Transactions and units per transaction declined in both periods.
- Online sales increased 3.8% to $19.6 million in the quarter and 10.0% to $55.4 million year to date.
- Quarterly gross margin improved mainly from higher merchandise margins; lower selling expense as a share of sales also contributed. General and administrative expense increased 22.7% in the quarter, including higher vacation-pay and equity-compensation expense.
Financial position, cash flow, and capital allocation
- At October 27, 2012, cash and cash equivalents were $213.0 million, short-term investments $31.7 million, and total cash and investments $278.6 million. Working capital was $301.3 million.
- Total liabilities were $163.4 million and stockholders’ equity was $448.5 million. The company reported no bank borrowings; it had an unsecured $25.0 million credit line, with up to $20.0 million available for letters of credit.
- Year-to-date operating cash flow was $92.4 million; capital expenditures were $26.1 million. Cash increased $46.5 million to $213.0 million after investing outflows of $21.5 million and financing outflows of $24.3 million.
- The company paid $28.8 million in dividends during the first 39 weeks. After quarter-end, the board authorized a $4.50-per-share special dividend and a $0.20-per-share quarterly dividend, together estimated at approximately $225.3 million, payable December 21, 2012.
Outlook, risks, and unusual items
- Management estimated fiscal 2012 capital expenditures of approximately $28–$34 million and expected about three additional store construction projects during the remainder of the year. It believed available cash, investments, and operating cash flow would fund anticipated needs for several years, while noting the December dividend and potential adverse changes in demand, product mix, competition, or economic conditions.
- The business is seasonal, with holiday and back-to-school periods historically accounting for significant sales. Interim results are not necessarily indicative of full-year results.
- Investments included auction-rate and preferred securities with par value of $15.1 million and fair value of $11.4 million. The filing reports $1.0 million of temporary impairment and $2.7 million of other-than-temporary impairment; some securities have limited liquidity and Level 3 valuations depend on management and consultant assumptions.
- Management disclosed no material change in risk factors from its prior Form 10-K, no legal proceedings, and no material changes in internal control over financial reporting. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the December 2012 dividends were paid as announced and their effect on cash, liquidity, and subsequent capital allocation.
- Comparable-store sales drivers, particularly the reliance on higher ticket prices amid lower transaction counts and units per transaction.
- Inventory growth and valuation: inventory was $134.5 million at quarter-end versus $104.2 million at fiscal year-end; the markdown/obsolescence reserve was $7.1 million.
- Recoverability, liquidity, and valuation assumptions for the auction-rate securities and preferred investments.
- Actual fiscal-year capital expenditures and store opening/remodel activity compared with management’s estimates.