Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: October 31, 2009 (Third Quarter of Fiscal 2009)
Business Overview: Retailer of medium to better-priced casual apparel, footwear, and accessories for young men and women. As of October 31, 2009, the company operated 404 stores in 41 states.
Key Financial Metrics
| Metric | 13 Weeks Ended Oct 31, 2009 | 39 Weeks Ended Oct 31, 2009 |
|---|---|---|
| Net Sales | $231.2 million | $623.8 million |
| Gross Profit | $102.1 million (44.2% margin) | $271.1 million (43.4% margin) |
| Income from Operations | $51.7 million (22.4% margin) | $131.5 million (21.1% margin) |
| Net Income | $33.3 million | $85.2 million |
| Diluted EPS | $0.71 | $1.83 |
| Cash & Cash Equivalents | $74.0 million (as of Oct 31, 2009) | |
| Total Investments | $93.2 million (Short-term: $19.6M; Long-term: $73.6M) | |
| Working Capital | $146.4 million | |
| Debt | No bank borrowings outstanding; $17.5M unsecured line of credit available. |
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 9.8% in the quarter and 15.4% year-to-date compared to the prior year. Comparable store sales rose 4.3% in the quarter and 9.7% year-to-date.
- Profitability: Net income increased 14.5% in the quarter and 21.5% year-to-date. Operating margins improved due to better merchandise margins and cost leverage.
- Inventory: Inventory levels increased significantly to $118.2 million (from $84.0 million at Jan 31, 2009), resulting in a $34.3 million cash outflow for inventory build-up.
- Investments: The company liquidated $3.2 million of auction-rate securities (ARS) and preferred securities during the quarter. Total cash and investments decreased from $162.5 million to $74.0 million primarily due to dividend payments and capital expenditures.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates total capital expenditures for fiscal 2009 will be approximately $46 to $50 million. This includes a new 240,000 sq. ft. distribution center in Kearney, Nebraska, with a projected cost of $25 to $27 million (majority spending in fiscal 2010).
- Liquidity: Management believes existing cash, investments, and operating cash flow are sufficient to fund operations and expansion for the next several years.
- Investment Risks (ARS): The company holds $23.3 million in auction-rate securities (ARS) and $0.4 million in preferred securities. These are reported at fair value net of $1.7 million temporary impairment and $2.5 million other-than-temporary impairment (OTTI). Liquidity is constrained due to failed auctions since February 2008.
- Economic Risks: The global recession continues to cause uncertainty and reduced consumer spending. Future results depend on discretionary consumer spending, fashion trends, and competitive factors.
- Dividends: A special one-time cash dividend of $1.80 per share was paid on October 27, 2009.
Investor Verification Checklist
- ARS Liquidity: Verify the current status of the $23.3 million auction-rate securities portfolio and the likelihood of recovery given the ongoing market freeze.
- Inventory Levels: Assess the $118.2 million inventory balance against sales velocity to ensure no significant future markdowns or obsolescence risks.
- Capital Project Costs: Monitor the construction progress and cost overruns for the new distribution center, which is a major component of the $46-$50M capex guidance.
- Comparable Store Sales: Track the sustainability of the 4.3% comparable store sales growth in the context of the broader economic recession.
- Dividend Policy: Confirm if the $1.80 special dividend is a recurring strategy or a one-time event, given the significant cash outflow ($111M in dividends YTD).