Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: November 3, 2007 (Thirteen and Thirty-Nine Weeks)
Business Overview: The Buckle is a retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women. As of November 3, 2007, the company operated 367 stores in 38 states. The fiscal year 2007 periods end one week later than the prior year due to a 53rd week in the fiscal 2006 retail calendar.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Nov 3, 2007 |
13 Weeks Ended Oct 28, 2006 |
39 Weeks Ended Nov 3, 2007 |
39 Weeks Ended Oct 28, 2006 |
|---|---|---|---|---|
| Net Sales | $167,559 | $143,084 | $412,927 | $355,088 |
| Gross Profit | $70,749 | $58,649 | $162,665 | $131,744 |
| Gross Margin % | 42.2% | 41.0% | 39.4% | 37.1% |
| Operating Income | $33,139 | $25,841 | $66,695 | $47,388 |
| Operating Margin % | 19.8% | 18.1% | 16.1% | 13.4% |
| Net Income | $22,198 | $17,661 | $46,183 | $33,654 |
| Diluted EPS | $0.72 | $0.59 | $1.50 | $1.12 |
| Cash Flow from Operations | N/A | N/A | $49,995 | $18,771 |
| Cash & Equivalents | $40,092 | $35,752 | $40,092 | $35,752 |
| Short-Term Investments | $140,725 | $115,721 | $140,725 | $115,721 |
| Total Debt | $0 | $0 | $0 | $0 |
Note: The company had no bank borrowings during the period. Total cash and investments stood at $209.2 million as of November 3, 2007.
Material Changes vs. Prior Period
- Sales Growth: Net sales increased 17.1% for the quarter and 16.3% year-to-date. Comparable store sales rose 14.3% for the quarter and 10.6% year-to-date, driven by increased transaction volume and higher average retail prices (up 3.1% for the quarter).
- Margin Expansion: Gross margin improved to 42.2% (quarter) and 39.4% (YTD) due to better merchandise margins and leveraged buying/distribution costs. Operating margin expanded to 19.8% (quarter) and 16.1% (YTD).
- Profitability: Net income increased 25.7% for the quarter and 37.2% year-to-date.
- Inventory Build: Inventory levels increased significantly from $70.3 million to $99.5 million, resulting in a cash outflow of $29.2 million from operating activities year-to-date.
- Store Count: The company opened 18 new stores during the first three quarters of fiscal 2007.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates total capital expenditures for fiscal 2007 will be approximately $25 million to $27 million. This includes new store construction and remodels.
- Liquidity: The company maintains a strong liquidity position with $209.2 million in cash and investments. It has an unsecured line of credit of $17.5 million (with $10 million available for letters of credit), though no borrowings were made during the period.
- Seasonality: The business is highly seasonal, with the holiday season (Nov 15 - Dec 30) and back-to-school season (July 15 - Sept 1) historically accounting for the majority of annual sales.
- Risks: Key risks include changes in fashion trends, competitive factors, general economic conditions, and the ability to manage inventory levels and markdowns. The company also faces potential risks from future store opening acceleration or potential mergers/acquisitions impacting cash availability.
- Accounting Changes: The company adopted FIN 48 (Accounting for Uncertainty in Income Taxes) with no material impact. SFAS 157 and SFAS 159 are expected to be effective in fiscal 2008 but are not anticipated to have a material impact.
Investor Verification Checklist
- Inventory Valuation: Verify the adequacy of the $5.8 million reserve for markdowns and obsolescence given the significant increase in inventory levels.
- Comparable Store Sales Drivers: Confirm the sustainability of the 14.3% comparable store sales increase, specifically the reliance on higher average ticket prices versus unit volume.
- Capital Expenditure Execution: Monitor the completion of the estimated $25-$27 million in capital expenditures and the performance of the 18 new stores opened YTD.
- Stock Repurchase Plan: Note that 95,700 shares were repurchased in the quarter, with 284,400 shares remaining under the authorized plan.
- Dividend Policy: Verify the continuation of dividend payments, which totaled $19.5 million year-to-date.