Business Context and Reporting Period
Company: The Buckle, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Thirteen and thirty-nine weeks ended November 3, 2001.
Business Overview: Retailer of medium to better-priced casual apparel and footwear for young men and women. As of November 3, 2001, the company operated 298 stores in 37 states.
Key Financial Metrics
| Metric | 13 Weeks Ended Nov 3, 2001 | 39 Weeks Ended Nov 3, 2001 |
|---|---|---|
| Net Sales | $111.1 million | $266.2 million |
| Gross Profit | $38.7 million (34.8% margin) | $83.8 million (31.5% margin) |
| Operating Income | $16.7 million (15.1% margin) | $27.3 million (10.3% margin) |
| Net Income | $11.0 million | $19.2 million |
| Diluted EPS | $0.51 | $0.89 |
| Cash from Operations | Filing text does not provide a clear value for 13 weeks | $1.7 million |
| Cash & Equivalents | $64.7 million (as of Nov 3, 2001) | |
| Working Capital | $155.5 million | |
| Debt | No bank borrowings during the first nine months of fiscal 2001. |
Material Changes vs. Prior Period
- Sales Decline: Net sales decreased 2.6% in the quarter and 1.3% year-to-date compared to the prior year. Comparable store sales dropped 3.9% in the quarter and 7.6% year-to-date.
- Price Reductions: The decline in comparable store sales was partially driven by a decrease in the average price per piece of merchandise sold (3.4% in the quarter; 5.8% year-to-date).
- Margin Compression: Gross profit margins decreased slightly (34.9% to 34.8% in the quarter; 31.8% to 31.5% year-to-date) primarily due to higher occupancy costs, partially offset by improved merchandise margins.
- Expense Increases: Selling and General & Administrative expenses increased as a percentage of net sales due to a decline in leverage from lower comparable store sales and higher payroll/travel costs.
- Cash Flow: Net cash provided by operating activities dropped significantly to $1.7 million for the 39-week period compared to $11.8 million in the prior year, largely due to a greater build-up of inventory.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates total capital expenditures for fiscal 2001 will be approximately $16.0 million (before landlord allowances). New store construction for the fiscal year was completed in the third quarter.
- Liquidity: The company maintains an unsecured line of credit of $7.5 million and a $10.0 million line for letters of credit. No borrowings were made during the first nine months of fiscal 2001.
- Seasonality: The business is highly seasonal, with the Christmas and back-to-school seasons historically accounting for approximately 40% of annual net sales.
- Risks: Forward-looking statements are subject to risks including changes in fashion trends, competitive factors, and general economic conditions in the retail apparel industry.
- Accounting Changes: The company adopted SFAS No. 133 (Derivatives) with no significant impact. Future adoption of SFAS No. 141, 142, 143, and 144 is not expected to have a significant impact.
Investor Verification Checklist
- Verify the sustainability of the 3.9% decline in comparable store sales and the impact of lower average selling prices on future profitability.
- Monitor inventory levels, as the significant increase in inventory build-up reduced operating cash flow to $1.7 million year-to-date.
- Assess the impact of higher occupancy costs on gross margins in upcoming quarters.
- Confirm the execution of the remaining capital expenditure plan (one store remodeling) and the status of new lease negotiations.
- Review the effectiveness of the company's strategy to offset lower comparable store sales with new store openings (24 new stores opened in the first 39 weeks).