The Buckle, Inc. — Form 10-Q Summary
Period: The filing covers the 13 and 26 weeks ended August 1, 2020, compared with periods ended August 3, 2019. The request metadata says “2019 Q2,” which conflicts with the filing’s stated 2020 reporting period.
Business context
Buckle is a specialty retailer of casual apparel, footwear, and accessories, operating one reportable segment through stores and e-commerce. It had 446 stores in 42 states at August 1, 2020; 431 were open. All stores had temporarily closed beginning March 18 because of COVID-19, with reopening beginning the week of April 26. The online store remained open.
Financial performance
Amounts below are in millions of dollars except per-share data; figures may not sum due to rounding.
| Metric | 13 weeks ended Aug. 1, 2020 | 13 weeks ended Aug. 3, 2019 | 26 weeks ended Aug. 1, 2020 | 26 weeks ended Aug. 3, 2019 |
|---|---|---|---|---|
| Net sales | $216.0 | $203.8 | $331.4 | $405.1 |
| Gross profit | $93.4 | $78.7 | $120.2 | $155.4 |
| Gross margin | 43.2% | 38.6% | 36.3% | 38.4% |
| Operating income | $45.5 | $19.6 | $29.4 | $38.3 |
| Net income | $34.7 | $16.4 | $22.9 | $31.5 |
| Diluted EPS | $0.71 | $0.34 | $0.47 | $0.65 |
Second-quarter sales rose 6.0%; online sales nearly doubled to $46.0 million, or 21.3% of sales. For the first half, sales fell 18.2%, while online sales increased 64.3% to $78.1 million, or 23.6% of sales. Second-quarter gross margin improved 4.6 percentage points, reflecting better merchandise margins and leverage of occupancy, buying, and distribution costs. First-half gross margin declined 2.1 points, principally because lower sales deleveraged those costs. First-half operating margin was 8.9%, versus 9.5% a year earlier.
- Cash flow: First-half operating cash flow was $49.2 million, compared with $35.5 million. Investing cash outflow was $4.0 million and financing cash outflow was $0.4 million; cash increased $44.7 million to $265.7 million.
- Liquidity: Working capital was $244.5 million. Cash and investments totaled $294.9 million, including $12.6 million of short-term and $16.5 million of long-term investments.
- Debt and leases: No bank borrowings were outstanding. The company had a $25 million unsecured credit line, expiring July 31, 2021, with $1.9 million of letters of credit outstanding. Operating lease liabilities totaled $333.3 million; undiscounted future lease payments were $366.0 million.
Material changes, outlook, and risks
- COVID-19 store closures materially reduced first-half revenue. Of the 15 stores closed at quarter-end, two had not reopened after damage and 13 California stores had closed again under state restrictions.
- Second-quarter selling, general, and administrative expenses fell 19.0%, mainly due to lower compensation and benefit costs during furloughs and reduced staffing; higher shipping and marketing expenses from e-commerce growth partly offset the savings.
- A $1.0 million store-asset impairment charge was recorded in the first quarter. May and June rent deferrals were negotiated after essentially full April rent was paid; the deferrals were included in accounts payable and did not change quarterly rent expense.
- The board temporarily suspended quarterly dividends to preserve cash and flexibility amid COVID-19 uncertainty. No dividends were paid in the first half of fiscal 2020.
- Management estimated fiscal 2020 capital expenditures of approximately $7–$10 million and expected to complete three additional full-store remodels during the remainder of the year. Management stated existing cash, investments, and operating cash flow were expected to cover anticipated capital and working-capital needs for several years. No sales or earnings guidance was provided.
- Key risks include continued uncertainty about COVID-19 and store operations, demand and general economic conditions, competition, fashion and product-mix changes, markdowns, and potential inventory obsolescence. The business is seasonal, with holiday and back-to-school periods historically accounting for about 35% of annual sales.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is for the quarter ended August 1, 2020, not 2019 Q2.
- Track store reopening status and the contribution, profitability, and durability of e-commerce growth.
- Assess whether improved quarterly margins persist, given first-half sales declines and occupancy-cost deleverage.
- Monitor cash generation, deferred rent and other payables, lease obligations, and the timing of any dividend reinstatement.
- Review inventory markdown exposure and the effects of COVID-19, consumer demand, and seasonal trading on results.