Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: May 2, 2009 (First Quarter of Fiscal 2009)
Business Overview: Retailer of medium to better-priced casual apparel, footwear, and accessories for young men and women. As of May 2, 2009, the company operated 392 stores in 40 states.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Sales | $199.7 million | $160.3 million |
| Gross Profit | $86.7 million | $65.6 million |
| Gross Margin | 43.4% | 40.9% |
| Operating Income | $41.7 million | $27.4 million |
| Operating Margin | 20.9% | 17.0% |
| Net Income | $26.9 million | $18.7 million |
| Diluted EPS | $0.58 | $0.40 |
| Cash Flow from Operations | $35.5 million | $12.2 million |
| Cash & Cash Equivalents | $170.9 million | $141.2 million |
| Total Investments | $78.4 million | $75.4 million |
| Working Capital | $204.5 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 24.6% year-over-year, driven by a 17.7% increase in comparable store sales and the inclusion of 21 new stores opened in the prior fiscal year.
- Margin Expansion: Gross margin improved by 250 basis points to 43.4%, attributed to better merchandise margins and leveraged buying/distribution costs.
- Profitability: Net income rose 43.5% to $26.9 million, with operating income increasing 52.5% due to sales volume and cost control.
- Investment Portfolio: The company holds $28.4 million in auction-rate securities (ARS) and $7.4 million in preferred stock. These assets carry a $1.5 million temporary impairment and a $5.2 million other-than-temporary impairment (OTTI) related to the Lehman Brothers bankruptcy and market liquidity issues.
- Cash Flow: Operating cash flow surged to $35.5 million compared to $12.2 million in the prior year, largely due to changes in working capital (specifically accounts payable and accrued compensation).
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates total capital expenditures for fiscal 2009 will be between $44 million and $48 million, including approximately 30 additional store projects (15 new, 15 remodeled).
- Liquidity: The company maintains a strong liquidity position with $249.3 million in total cash and investments. It has an unsecured line of credit of $17.5 million, with no borrowings outstanding as of May 2, 2009.
- Investment Risks: Significant risk exists regarding the liquidity and valuation of ARS. While the company does not anticipate a material impact on its ability to fund operations, continued auction failures or credit downgrades could lead to further impairments.
- Economic Risks: The company notes that the global recession has caused uncertainty and reduced consumer confidence, which could adversely affect discretionary spending and future results.
- Dividends: A quarterly dividend of $0.20 per share was paid during the period.
Investor Verification Checklist
- Investment Valuation: Verify the current fair value and liquidity status of the $28.4 million auction-rate securities portfolio and the $5.2 million OTTI charge.
- Comparable Store Sales: Confirm the sustainability of the 17.7% comparable store sales growth in the context of the broader economic recession.
- Capital Allocation: Monitor the execution of the $44-$48 million capital expenditure plan against cash flow generation.
- Inventory Levels: Review inventory turnover and markdown reserves ($5.5 million) to ensure no obsolescence risks are emerging.
- Share Repurchases: Note that 799,300 shares remain available under the authorized repurchase plan, though no shares were purchased in Q1 2009.