The Buckle, Inc. — Form 10-Q Summary
Period clarification: The request metadata says 2021 Q3, but the filing provided is for the 13 and 39 weeks ended October 29, 2022 (fiscal 2022 Q3), with comparisons to October 30, 2021. Financial amounts below are in U.S. dollars; amounts are shown in millions unless stated otherwise.
Business context and reporting period
The Buckle is a U.S. retailer of casual apparel, footwear, and accessories, operating one reportable segment through stores and e-commerce. It had 441 stores in 42 states at October 29, 2022. Online sales were 16.5% of net sales in both the quarter and year-to-date period. The business is seasonal, with holiday and back-to-school periods historically contributing the greatest sales volume.
Financial performance
| Metric | 13 weeks ended Oct. 29, 2022 | 13 weeks ended Oct. 30, 2021 | 39 weeks ended Oct. 29, 2022 | 39 weeks ended Oct. 30, 2021 |
|---|---|---|---|---|
| Net sales | $332.3 | $319.4 | $943.4 | $913.7 |
| Gross profit / margin | $165.4 / 49.8% | $161.1 / 50.4% | $462.9 / 49.1% | $450.6 / 49.3% |
| Operating income / margin | $79.4 / 23.9% | $82.2 / 25.7% | $218.2 / 23.1% | $225.9 / 24.7% |
| Net income | $61.4 | $62.2 | $166.8 | $170.9 |
| Diluted EPS | $1.24 | $1.26 | $3.37 | $3.46 |
| Operating cash flow | Not provided separately | Not provided separately | $135.1 | $221.1 |
Quarterly comparable sales increased 3.0%; year-to-date comparable sales increased 2.8%. Online sales rose 8.8% to $55.0 million for the quarter and 5.3% to $155.6 million year to date. The average retail price per piece rose 6.0% in the quarter and 3.7% year to date.
At October 29, 2022, cash and cash equivalents were $302.2 million, short-term investments $22.9 million, and long-term investments $19.6 million. Working capital was $265.8 million; total cash and investments were $344.7 million. The company reported no bank borrowings and had a $25.0 million unsecured credit line, expiring July 31, 2023. Operating lease liabilities totaled $267.7 million; the filing reports no bank debt. Inventory was $152.3 million, up from $102.1 million at January 29, 2022.
Material changes versus the prior comparable period
- Quarterly sales increased 4.0%, but operating income fell 3.4% and net income fell 1.3%. Year-to-date sales increased 3.3%, while operating income fell 3.4% and net income fell 2.4%.
- Gross margin declined 60 basis points in the quarter and 20 basis points year to date. Management attributed the quarterly decline to a 75-basis-point reduction in merchandise margins, partly offset by leverage in buying, distribution, and occupancy costs.
- Quarterly SG&A rose to 25.9% of sales from 24.7%; year-to-date it rose to 26.0% from 24.6%. Management cited higher store labor and other expenses, partly offset by lower incentive compensation accruals.
- Year-to-date operating cash flow declined to $135.1 million from $221.1 million, primarily due to inventory rebuilding, changes in accounts payable, and payment of prior-year incentive bonuses. Inventory reduced operating cash flow by $50.2 million in the period.
- The company paid $52.6 million in dividends year to date, versus $49.3 million in the prior-year period. It entered a new five-year private-label credit-card agreement effective July 1, 2022; related bank payments are recorded in net sales, and the bank bears guest nonpayment risk.
Outlook, risks, and other matters
Management estimated fiscal 2022 capital expenditures of approximately $26–$30 million, primarily for store projects and technology, and expected to complete one new store and eight additional full remodels during the remainder of the fiscal year. Management said cash, investments, and operating cash flow should fund anticipated capital expenditures and working capital needs for the next several years. No specific sales or earnings guidance was provided.
Risks cited include weaker product demand, changes in product mix or fashion trends, competition, general economic conditions, and retail-industry conditions. Inventory markdown and obsolescence estimates are judgmental; the markdown/obsolescence adjustment was $6.2 million at October 29, 2022. The company noted that seasonal results may not indicate full-year performance. A 0.25-percentage-point decline in interest/dividend rates earned on cash and investments was estimated to reduce net income by approximately $0.5 million, or less than $0.01 per share.
Management reported no material change in risk factors from its latest Form 10-K, no legal proceedings, and effective disclosure controls. Store-asset impairment was immaterial in the periods presented. The filing states there were no bank borrowings in the first three quarters of fiscal 2022 or 2021.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is fiscal 2022 Q3, not 2021 Q3.
- Monitor inventory growth, merchandise margins, markdown exposure, and the effect of labor and other operating costs on margins.
- Assess whether cash generation rebounds after the inventory build and compare future capital spending and dividends with operating cash flow.
- Review the new credit-card agreement’s contribution to reported sales and any performance-based incentives.
- Consider the scale and timing of operating lease commitments and the credit line’s July 2023 expiration.